Page 2
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 3Page 4
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 5Page 6
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 7Page 8
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 9Page 10
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 11Page 12
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 13Page 14
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 15Page 16
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 17Page 18
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 19Page 20
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 21Page 22
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 23Page 24
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. Page 25Page 26
COMPARISON OF OVERHEAD COSTS Mr. STEED. Since this item could in a general way be classified or defined as overhead costs, have you any way of making any comparisons between what your overhead costs are, related to your total operation, compared to some similar private employment activity? Mr. COHEN. I'm not sure that there is anything directly comparable; having been once the managing partner of a law firm, or one of the managing partners, a fellow who was in charge of bookkeeping and analysis, I know in the average law firm, of size, in the United States, your overhead factors would run anywhere from 40 to 60 percent. But I don't know that those are necessarily comparable and the figures offhand on what one of the national accounting firms might be, and I don't know if they are available since they are not publicly owned in any respect.
Our overhead factor as against our total budget obviously is pretty small as a percentage. Mr. SMITH. We always have a serious problem of definition. Just what is overhead? It is important that everyone consider the matter from the same relative base.
Mr. COHEN. If we are talking about the national office, even though small portions of the national office that might be funded out of appropriations, we are talking about approximately 4,000 people as against 62,000 or 63,000 permanent base. So again, it is a very, very small proportion. Mr. SMITH. Many of these 4,000 employees have an operating responsibility--such as our Office of International Operations. Mr. COHEN. Yes. Or in technical.
ALLOCATION OF APPROPRIATIONS Mr. STEED. By necessity, because of the forms the 100 million-plus taxpayers have to use, you have, of course, a substantial printing bill. What item of your appropriation do you use to pay the printing costs?
Mr. COHEN, It is split between the three appropriations. Prior to 1968 the great bulk of it was in revenue accounting and processing. We made an inter appropriation adjustment, in the 1968 request, to spread it proportionately between the three. Mr. SMITH. It is ratably distributed. The idea was to divide the costs in such a way that they reflect in each appropriation the interests and proportionate stake of our various activities. Mr. STEED. How do you carry your appropriations, for say, furniture and equipment, office supplies, and that sort of thing? Do you break it down similar to this?
Mr. COHEN. Furniture and equipment are directly charged to appropriations. Office supplies, things of that nature are distributed between three appropriations in accordance with the number of personnel under each.
Mr. STEED. How do you carry not only the initial costs, your capital investment costs, but actual operation of facilities costs, like data centers and regional ADP functions? Mr. COHEN. The equipment costs are charged against the applicable appropriation. In this case it would be revenue accounting appropriation. Mr. STEED. Do you have any questions? Mr. CONTE. No questions.
Mr. STEED. Mr. Yates? Mr. YATES. No questions.
Total personnel compensation.. 12.0 Personnel benefits..
REVENUE ACCOUNTING AND PROCESSING APPROPRIATION OBJECT CLASSIFICATION (IN THOUSANDS OF DOLLARS)
Personnel compensation: Permanent positions.. Positions other than permanent.. Other personnel compensation...
22.0 Transportation of things... 23.0 Rent, communications, and utilities. 24.0 Printing and reproduction... Other services.. 25.1
131, 745 9, 373 1,234 1,286
17, 269 6, 541 22, 012 5.8 $6,576 $5,926
172,989 -432 172, 557 393 172,950
172,557 14, 322 -15, 320 -225 171,334
1968 estimate 1969 estimate
Mr. STEED. The next item will be "Revenue accounting and processing." The appropriation for this account last year was $177 million. The request for 1969 is $188,563,000, an increase of $11,563,000.
JUSTIFICATION OF THE ESTIMATES The justifications will be inserted at this point in the record. (The justifications follow:)
1968 appropriation enacted by Congress___ Adjustments: (1) Reductions to implement congressional directives: (b) Civil Service examining program.. Subtotal, reductions___.
Reduced level, 1968, exclusive of pay and other supplementals---- (a) Pay and postal increases_
(3) Supplemental appropriation required for pay and other: Subtotal Total cost of pay and other increases___.
Proposed authorized level for 1968-1969 budget estimate----
-2,462, 000 -206, 000 -2, 668, 000 174, 332, 000
77,000 1 2, 314, 000 2, 391, 000 5,059, 000 179, 391, 000 188, 563, 000 9, 172, 000
Increase over 1968 authorized level_‒‒‒‒ 1 Contingent on approval by Congress during 2d sess. of 90th Cong. This appropriation consists of three activities: District manual operations, service center automated operations, and statistical reporting. 1. District manual operations consists of the office of the collection division chief and subordinate branches (except the delinquent accounts and returns branch) in the district offices throughout the country. This activity has gradually diminished as conversion of revenue accounting and returns processing to the master file ADP system moved toward completion. Further decreases are taking place in district offices as voluntary filing of refund income tax returns is extended to all regions and mandatory direct filing is being implemented in two regions. Additional functions to those originally foreseen are also gradually being shifted to the regional service centers (such as master file account and certain tax return adjustments, related correspondence with taxpayers, and retention in the service centers of certain categories of tax returns), as experience indicates that these functions can be performed more economically at the service centers than in the districts. This activity provides for receiving tax returns and notices, depositing tax payments, and providing taxpayer assistance on bills, notices, and other assistance. It also requisitions, issues and controls Internal Revenue stamps and other receipts for payment of taxes. It is responsible for adjustments of certain tax returns; maintaining tax return files and furnishing information from the files as requested; providing various types of income tax forms to taxpayers upon request; and photostating tax forms, returns and other documents as required.
2. Service center automated operations consists of the Office of the Assistant Commissioner, data processing and his subordinate divisions in the national office; the offices of Assistant Regional Commissioner, data processing; the
National Computer Center at Martinsburg, W. Va.; seven regional service centers; and the IRS data center at Detroit, Mich. This activity provides for overall direction of revenue accounting and processing functions and for operations of regional service centers, the National Computer Center, moneys, processing, verifying, and computing tax liabilities; mailing tax return forms and instructions to taxpayers; and maintaining master files of taxpayers, and a single, centralized account for each taxpayer. It performs revenue accounting; maintains subsidiary and general ledgers of tax revenue collected; records assessments; collections, receivables, refunds, over-assessments, etc.; and issues tax bills and notices of delinquencies and established delinquent accounts. It pays refunds or, where possible, offsets them against delinquent accounts. It prevents the payment of duplicate refunds. It compares information documents with tax returns and it provides investigation leads as to potential failures to file required tax returns. It also manages the Service's internal reporting system. An IRS Data Center was activated in 1965. It began operations in 1966, and will continue enlarging these operations for the Service, including the preparation of Treasury Department payrolls; statistics of income; the taxpayer compliance measurement program tabulations, work progress reports and special studies; special tax research; personnel analysis reports; special tabulations for States and for other Federal agencies; and statistical information for management control use by national office officials. 3. Statistical reporting consists of the statistics division under the Assistant Commissioner, planning and research. It is also charged with certain man-years at the service centers where statistics of income and other data processing operations for the statistics division are performed. This activity provides for the extraction and analysis of information from tax returns and, therefrom, preparing and publishing annual reports (principally in the statistics of income series) for use by the Treasury Department, the Joint Congressional Committee on Internal Revenue Taxation, the Council of Economic Advisors, and others. It also prepares other studies of specific features of the tax system and measurement of taxpayer response. It prepares studies of state taxes, particularly estimates of average sales taxes, for use by taxpayers in preparing, and service personnel in reviewing, tax returns. It develops projections of tax returns to be filed by type, by region, and by district and makes other workload projections several years in advance as a basis for Service long-range planning; and it provides professional assistance (data analysis, sample design and management, program formulation, statistical research, systems and procedures development, etc.) to other Service activities. No man-year increase is requested for this activity in 1969.
ADDITIONAL MANPOWER AND FUNDS NEEDED The additional $9,172,000 requested for this appropriation for 1969 is a net figure, computed as follows:
a. For continued lease of third 360 system ($1,000,000); for
($1,200,000) b. For increased costs of personnel and materials and facili- c. For lease of partial direct data entry system at three serv- ice centers
d. For within-grades, one extra day's pay and increases costs
e. For increased costs of support services and facilities f. For increased cost of Federal Telecommunications System_ h. To provide for full-year cost of postage increase, author- i. For interappropriation adjustment-- j. Less nonrecurring 1968 expenses Net increase requested..
10, 632, 000 1,500,000 982, 000 1, 846, 000 480, 000 1, 862, 000 933, 000 -11, 139, 000 -124, 000 9, 172, 000
Lease of equipment for maintenance of master file Additional performance improvement at the National Computer Center can be attained continuing the third 360 system on lease in 1969 and by leasing components upgrading the basic 360 system to full operating system. By the expenditure of $2,200,000 in lease costs we will be able to install a full operating system that will cut programing costs and keep our computer installation operating at maximum efficiency.
Growth in population, economy, and programs Requirements for growth are based upon additional needs from three general
areas: (1) Increased growth in returns filed in 1969 is expected to exceed the 2-percent increase in efficiency and require an additional 27 man-years. (2) It is expected that 3.5 million returns (1 million from 1967 and 2.5 mil lion from 1968) will be carried into 1969 as backlog work. Although it would normally require 700 man-years to eliminate this backlog, it is believed that the application of further efficiencies can reduce this requirement to 495 man-years. (3) Growth in programs will require an additional 376 man-years. Program
growth is best illustrated by the following: (a) Generation of work by the ADP system in correspondence, adjustment to taxpayer accounts and related research in the service centers.
(b) A substantial growth in computer programs, transactions, and runs in the National Computer Center. (c) Implementation of direct data entry, increased systems requirements in the National Office. The increase of 898 man-years will require an increase of $5,287,000 in personnel compensation and benefits. In addition funds in the amount of $5,345,000 are required in the materials and facilities area. This requirement represents additional needs, primarily in equipment such as magnetic ink character recognition and encoders, automatic mail equipment, etc. Also a requirement exists for improvement of space and additional space.
Lease of direct data entry equipment The expenditure of $1,500,000 will provide for the lease of partial direct data entry systems for three of our service centers in 1969. These systems will speed the processing of data and eliminate a portion of our present key punch and verification equipment.
Services and benefits to taxpayers continue Not only is the service doing a better and more thorough job of tax administration under ADP, but services and benefits to the taxpayer continue to multiply. Gross receipts of all Federal taxes in fiscal year 1967 were $148.3 billion, an increase of $19.4 billion over fiscal year 1966, a rise of 15.1 percent. The total amount collected and the percentage increase were the largest in the history of the United States.
Approximately 49 million refunds of overpaid Federal taxes were issued, totalling $9.6 billion in fiscal year 1967, including interest. This is the largest number of refunds and associated dollars scheduled in a fiscal year. It represents an increase over the prior year of 8.6 percent in the number of refunds and 31.7 percent in the dollar amount of principal and interest refunded. Over 27 million individual taxpayers took advantage of the option of filing their returns directly with the five service centers which were under the IMF in fiscal year 1967. This represented about 83 percent of the refundable returns received in these regions. This evidenced wide public acceptance of the direct filing concept. Both the taxpayer and the Service benefit by direct filing, which eliminate unnecessary handling of returns by district offices and speeds the mailing of refunds.
Mathematical verification of returns by ADP produced additional tax assessments in fiscal year 1967 of $207.6 million. At the same time, taxpayers benefited by having the Service call to their attention $94.3 million for mistakes they had made in favor of the Government. The net yield of $1.13.3 million was $9 million more than in 1966.
ADP also has been effective in identifying unpaid ADP tax account balances and making offsets prior to refunding overpayments to taxpayers. In fiscal 1967, 476,000 overpayments, amounting to 94.9 million, were offset against tax liabilities for the same taxpayers. |
What type of data entry is posted to a patients account that results in an increase or addition to the account balance?
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