and temporary, of 75,732 average positions. It provides for an additional $56.6 million and 2,988 average positions over the Revenue Service's authorized level for the current year.

The largest part of this requested increase, $50 million, is for the Service's frontline, revenue-producing programs. Nearly $34 million of it is for manpower needed to process tax returns, audit them, and collect money owed the U.S.

Other program increases provide for essential data processing equipment and for completing the equipping of the new service centers. A comparatively small amount also is requested to administer the new system of asset depreciation ranges (ADR) through the Office of Industrial Economics.

Although there are pressures for expansion in all IRS activities, budget increases are limited to those programs that are the most essential: to taxpayer service and the production of revenue. There are no program increases for the law enforcement, Internal Audit and Internal Security, or support activities of the Service.

Six point six million dollars of the requested increase is necessary to maintain IRS at its presently authorized staffing level. This amount is actually the net of more than $37 million in increases needed to cover the rising costs of items such as postal rates, mileage, per diem, and printing, and to cover the full-year costs of the Narcotics Program that was authorized earlier this year. Against these rising costs

we have offset $30.5 million in reductions, nonrecurring ex-
penses, and savings which we expect to realize in FY 1973.
(Chart 2)

Audit

The Audit program is of primary concern. We are requesting an additional $19.2 million in order to add 1,342 man-years to our audit staff. As the Committee knows, audit capability

75-749 O - 72 - 22

has been stretched increasingly thin over the past several years. A certain result of this weakened enforcement is lost revenue, in terms of thousands of productive audits that cannot be made. That is important; however, a more critical matter of concern is the potential deterioration in the levels of voluntary compliance. It is not merely important it is absolutely

necessary that our tax system, based on voluntary compliance, be maintained in a healthy and vigorous state. Our tax law enforcement must be adequate to prevent deterioration in the generally high levels of compliance.

Audit Manpower Shortage

We believe the Committee is aware of some of the major causes of our serious audit manpower shortage. First is the steep rise in audit workload. (Chart 6). In the decade from 1963 to 1973 the total number of returns filed will have risen

from 97.8 million to about 113.6 million, an increase of 16 percent. More importantly for Audit, during the same period the volume of returns constituting significant audit workload will have risen from 8.6 million to 33.8 million, a 295 percent increase. With each year, total filing is more heavily weighted with these more complex returns, having more schedules and potential tax issues and thus requiring audit attention. Meanwhile, audit technical manpower, revenue agents and tax auditors, available to handle this workload has been

declining between 1968 and 1972.

2,270 man-years, or 15 percent.

There has been a drop of
(Chart 7). In short, while

audit workload has been climbing rapidly, available audit manpower has moved in the opposite direction. The Country cannot afford this.

Total Audit strength remains roughly the same as in 1963 (Chart 8). However, the increasing need for technical manpower

for other critical programs has resulted in a decline in staff available for income, estate and gift tax examinations.

In 1964, 92 percent of Audit's time went to income,

estate and gift taxation; in 1971, it was about 86.2 percent. Conversely, in the same period the percent of total audit time required by other programs jumped from 8 percent to 13.8 percent. These special programs currently absorb about onefifth of total Audit technical manpower. They include such responsibilities as excise and employment taxes, exempt organizations, pension trusts, stabilization and criminal law enforcement, including the drive against organized crime

and narcotics.

These, of course, are desirable and necessary, often representing high national priorities. The Service willingly has applied its unique abilities to their implementation, just as it is now administering the public information and compliance aspects of the Economic Stabilization Program. But we must not lose sight of the fact that these programs produce little revenue, that they draw heavily on IRS manpower sorely needed for the task of producing the Government's revenue and maintaining high compliance with the income tax laws. The Service cannot fulfill its basic responsibility by achieving good results in these additional efforts. It must have the capability to audit tax returns in sufficient numbers to assure a sound, fully productive, tax system. This always has been and still is our first responsibility.

To

In order to carry out these additional assignments, and at the same time maintain the tax system, we must be able to replace audit personnel called on for other assignments. some extent this has occurred, as with the special funding for the Narcotics project. But this has been the exception

rather than the rule.

་ ་་་་ ་

20,000

(33.8 million)

Chart 7