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DEPARTMENT OF THE TREASURY
AT A GLANCE:
2006 Discretionary Budget Authority:
(Increase from 2005: 4 percent)

$11.6 billion

Major Programs:
• Collecting taxes
• Managing and accounting for the public debt
• Administering Federal finances
• Combating financial crime and terrorist financing
• Regulating and supervising financial institutions
• Producing coins and currency

MEETING PRESIDENTIAL GOALS
Promoting Economic Opportunity and Ownership
• Reforming the tax code to make it simpler and fairer for average taxpayers.
• Ensuring a safe and sound banking system through regulation and supervision of banks and
thrifts.
• Promoting and coordinating efforts of Federal agencies and the private sector to increase financial literacy for all Americans.

Protecting America
• Combating terrorist financing and financial crime, especially through efforts of the new Office
of Terrorism and Financial Intelligence, which will provide a comprehensive approach to
Treasury’s contribution to the War on Terror.

Agency-specific Goals
• Producing the world’s most accepted coins and currency and ensuring the integrity of the U.S.
dollar.

Making Government More Effective
• Providing new tax enforcement initiatives to promote fair and equitable tax enforcement and
increase revenue.
249

250

DEPARTMENT OF THE TREASURY

MEETING PRESIDENTIAL GOALS—Continued
• Reducing paper processing as more people file electronically with the Internal Revenue Service.
• Consolidating the Community Development Financial Institutions Fund with other community
and economic development programs.
• Focusing Internal Revenue Service customer service on telephone and Internet and away from
walk-in service centers.

THE BUDGET FOR FISCAL YEAR 2006

251

PROMOTING ECONOMIC OPPORTUNITY AND OWNERSHIP
President Bush has brought tax relief to Americans in each year since 2001 and is working on making this tax relief permanent while reforming the complex tax system. The President has appointed
a bipartisan panel to advise the Secretary of the Treasury on options to reform the tax code. The report that the panel will present this year should help move the Nation toward a simpler, fairer, more
pro-growth system, which recognizes the importance of home ownership and charity to American
society. Meanwhile, the Internal Revenue Service (IRS) is working to make it easier for taxpayers
to comply with Federal income tax rules. Taxpayers used the IRS.gov website 739 million times in
2004 to download forms and publications, up 32 percent from 2003. Electronic filing, which is faster,
easier, and far less prone to error than paper filing, increased by 16 percent in 2004 to more than 61
million individual tax returns. IRS estimates that 68 million, or half of all individual returns will be
electronically filed in 2005.

Need Customer Assistance?
Treasury’s Office of the Comptroller of the Currency (OCC) assists consumers in resolving complaints about national banks and
the credit cards issued by those banks. By resolving consumer
complaints, OCC returned $4.4 million in fees and charges to
national bank customers last year. You can contact OCC’s Customer Assistance Group toll-free by telephone, 1–800–613–6743,
or by e-mail at Customer.Assistance@occ.treas.gov. For more
information about the OCC’s Customer Assistance Group,
including information on how to file a formal complaint against
a national bank, visit OCC’s Customer Assistance web page at
www.occ.gov/customer.htm.

A healthy banking system is fundamental to a strong national economy. Treasury maintains the
health of the national banking and thrift system through the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). OCC and OTS conduct on-site examinations
and regulate financial institutions to ensure that institutions are properly capitalized and soundly
managed. In addition, OCC and OTS ensure that bank and thrift customers have fair access to
financial services by examining banks and thrifts for compliance with consumer banking laws. Finally, OCC and OTS act in conjunction with the Financial Crimes Enforcement Network (FinCEN)
to enforce laws and regulations that prevent banks and thrifts from allowing criminals to launder

252

DEPARTMENT OF THE TREASURY

PROMOTING ECONOMIC OPPORTUNITY AND OWNERSHIP—Continued
money through their institutions. In the next few years, the banking regulators will work on updating international uniform safety and soundness standards for banking institutions.
The Administration will again propose broad reform of the supervisory system for Governmentsponsored enterprises (GSEs) in the mortgage market: Fannie Mae, Freddie Mac, and the Federal
Home Loan Bank System. Part of this reform includes establishing a new safety and soundness
regulator for the housing GSEs with powers comparable to other world-class financial regulators,
and with the stature and resources necessary to carry out its responsibilities. The Budget places this
new regulator in the Department of the Treasury. The Administration’s proposal promotes a strong,
resilient financial system and increased opportunities for affordable homeownership. (See the Credit
and Insurance chapter in the Analytical Perspectives volume for a background discussion.)
Treasury’s Office of Financial Education contributes to the Administration’s pro-growth agenda
by equipping Americans with the knowledge needed to improve management of their finances. The
2006 Budget continues its commitment to the Office of Financial Education, which facilitates private
sector efforts to raise the level of financial literacy of Americans. Treasury coordinates the financial
education efforts of 20 Federal agencies.

THE BUDGET FOR FISCAL YEAR 2006

253

PROTECTING AMERICA

The Power of Sanctions: The Commercial Bank of Syria
In 2004, analysts and investigators from the Financial
Crimes Enforcement Network, the Office of Foreign
Asset Control, and the Internal Revenue Service Criminal
Investigation division identified the Commercial Bank of
Syria as an acute financial threat. The Commercial Bank
of Syria served as a haven for the laundering of proceeds
generated from violations of United Nations (UN)
sanctions against the Saddam Hussein regime in Iraq
and the UN’s Oil For Food program in Iraq, and retained
these proceeds in contravention of international law.
Moreover, terrorists and their supporters used the bank
and suspicious transactions were processed without
oversight. On May 11, 2004, Treasury designated the
Commercial Bank of Syria a “primary money laundering
concern” under the USA PATRIOT Act. This designation
exposed the bank to potentially serious countermeasures, including cutting the bank off entirely from the U.S.
financial system. Since May, the Government of Syria
has sought to avert such countermeasures by entering
into negotiations with Treasury aimed at bringing the
country into compliance with international anti-money
laundering standards.

The President’s Budget commits over $100 million to Treasury’s efforts to protect America through
detecting and stopping financial crimes, money laundering, and terrorist financing. The Office of
Terrorism and Financial Intelligence (TFI) fully integrates the operations and assets of the Office
of Terrorist Financing and Financial Crime (TF/FC), the Office of Foreign Assets Control (OFAC),
the Financial Crimes Enforcement Network (FinCEN), the Office of Intelligence and Analysis (OIA),
and the Treasury Executive Office for Asset Forfeiture (TEOAF). The aims of the consolidated TFI
organization are safeguarding the financial system against illicit use and wielding Treasury’s array
of economic tools against rogue nations, terrorist facilitators, money launderers, drug kingpins, and
other national security threats. TFI is divided into two functional areas: intelligence and enforcement. OIA provides focused and operable intelligence in support of the Department’s mission and
policies. TFI’s enforcement responsibilities—executed by the TF/FC, OFAC, and FinCEN—include
designating and freezing the accounts of terrorists, drug kingpins, and their support networks; implementing U.S. sanctions policy; administering and enforcing the Bank Secrecy Act (BSA); linking
law enforcement agencies with financial institutions to uncover illegal activities and schemes; and
helping strengthen U.S. and international standards to prevent money laundering and terrorist financing. Finally, TFI provides policy guidance for IRS’ Criminal Investigation’s expert investigators
in their anti-money laundering, terrorist financing, and financial crimes cases.

254

DEPARTMENT OF THE TREASURY

PROTECTING AMERICA—Continued
One of the most visible and effective tactics
of the comprehensive strategy has been
public designation of terrorists and terrorist
organizations.
Since September 2001, the
United States and our allies have designated
397 terrorist-related entities and frozen nearly
$147 million in terrorist assets worldwide.
IRS’ special agents are experts at gathering
and analyzing complex financial information
from numerous sources and applying the
evidence to tax, money laundering, and BSA
violations. These agents apply their training,
skills, and expertise to support the national
effort to combat terrorism and participate in
the Joint Terrorism Task Forces and similar
interagency efforts focused on disrupting and
dismantling terrorist financing.

Internal Revenue Service Criminal Investigation (IRS-CI) division
special agents display possible hawala symbols found stamped on U.S.
currency seized from Saddam Hussein upon his capture. Hawala is an
informal funds-transfer system sometimes used by money launderers
and terrorist financiers.

THE BUDGET FOR FISCAL YEAR 2006

255

AGENCY-SPECIFIC GOALS
The U.S. Mint (Mint) and the Bureau of Engraving and Printing
(BEP) are responsible for ensuring that our Nation continues to produce the world’s most accepted coin and currency. At the end of 2005,
the Mint will end its highly successful production of nickels in commemoration of the bicentennials of the Louisiana Purchase and the
Lewis and Clark expedition. All nickels issued in 2006 will bear the
likeness of Thomas Jefferson on one side, and an image of Monticello
on the other side. During 2006, the Mint will also roll out the next
installment of the popular 50 State quarters program, with quarters
for Nevada, Nebraska, Colorado, North Dakota, and South Dakota.
During 2006, BEP will continue to focus its resources on producing the most secure currency for the Nation. BEP will pursue the
redesign of the $100 note as part of its current multi-year initiative
to implement the most ambitious currency redesign in U.S. history.
The planned redesign of the $100 note follows successful redesigns of the $20 and $50 notes with
subtle background colors and other counterfeit deterrence features. A redesigned $10 note will be in
production and introduced into circulation in 2005.

In 2005, there will be a new face on the
Nation’s nickel. It will still be President
Thomas Jefferson, but unlike we have
ever seen him before.

256

DEPARTMENT OF THE TREASURY

MAKING GOVERNMENT MORE EFFECTIVE
Treasury is working to reduce duplicative programs and maximize the efficiency of all its bureaus.
For example, IRS officials are working to increase the effectiveness of their programs by helping to
bring about fairer and more efficient tax compliance at a lower cost. The Budget invests $265 million in new initiatives for these programs. This investment will provide additional audits, collection
efforts, and tax fraud enforcement to increase revenue and promote compliance.
To attack tax evasion most effectively, IRS
is targeting its enforcement resources on
Billions of dollars
high-risk taxpayers such as those potentially
50
-----Projection----involved in abusive trusts or offshore tax
45.9
43.3
evasion schemes. This focus on higher risk
43.1
40
taxpayers has resulted in increased audits
37.6
34.1
33.8
on higher income individuals and businesses.
30
Audits of high-income taxpayers—those
earning $100,000 or more—topped 195,000 in
20
2004, a 40-percent increase from 2003 and a
74-percent increase from 2002. Audits of the
10
largest businesses—those corporations with
assets of $10 million and over—climbed to
0
9,560, up 34 percent from 2003. One in six of
2001
2002
2003
2004
2005
2006
these large corporations were audited in 2004.
Source: IRS.
One sign of the success of this crackdown on
tax evasion is the increase in revenue resulting from enforcement actions, which reached a record
$43 billion in 2004 (see accompanying chart).

Enforcement Revenue

The American Jobs Creation Act of 2004 included an important new tax enforcement tool. Like
many States and other Federal agencies, IRS will now be able to hire private collection contractors
to supplement its own collection staff’s efforts to ensure that all taxpayers pay what they owe. The
legislation ensures contractors respect taxpayer rights. Treasury estimates these contractors will
increase delinquent tax collections by at least $1.4 billion over the next 10 years.
IRS has already achieved impressive successes in productivity improvements. Since 2002, IRS
has improved its productivity in tax collection (by telephone and mail) and correspondence audits
by more than 15 percent. The Budget proposes to streamline IRS’ taxpayer service programs by
reducing dependence on walk-in service centers and increasing reliance on more efficient telephone
and Internet service. This proposal was developed, in part, as a result of a 2004 Program Assessment
Rating Tool analysis of taxpayer service.
The Federal Government is working with the States to make filing taxes easier by providing more
forms that can be filed electronically. The Budget funds the Modernized E-File Project at an estimated $56 million, which has demonstrated success over the past several years.
Electronic filing also benefits the Government through reduced processing costs. The Budget includes a legislative proposal to increase the Secretary of the Treasury’s authority to mandate electronic filing from businesses and tax exempt organizations. This measure will assist the IRS in

THE BUDGET FOR FISCAL YEAR 2006

moving to its goal of receiving 80 percent of
all tax returns electronically. A corresponding
decrease in the cost of paper processing is reflected in the Budget. In addition to improving
efficiency, access to electronic tax data will
improve IRS’s ability to track organizations
that finance terrorism.
The IRS is also continuing its efforts to
improve operations and lower costs by adapting
best practices from the private sector. By
successfully competing against contractor
offers, teams of IRS employees found better and
cheaper ways to do their jobs, which will save
the Government and taxpayers $185 million
over five years.

257

The Number of Individuals Filing
Electronically Has Steadily Increased
60%

-----Projection----55%

50%

51%
47%

40%
40%
36%

30%

31%

20%
10%
0
2001

2002

2003

2004

2005

2006

Source: IRS.

In addition to easing the filing burden on taxpayers, the Department of the Treasury is improving
its payments and collections processes and moving toward an “all-electronic Treasury.” Treasury administers the Government’s payments and collections systems through the Financial Management
Service (FMS). In 2004, FMS issued over 705 million electronic payments and 235 million paper
checks. FMS annually issues over 940 million non-Defense payments, valued at $1.5 trillion, including Social Security benefits, tax refunds, and veterans’ benefits. Streamlining the payments and collections processes and continually investing in state-of-the-art technology is integral in processing
these payments and collections accurately, timely, and more safely and securely for the taxpayer.

The high-tech laser printers (shown above) FMS uses at its Regional
Financial Centers to print benefit and tax refund checks are capable of
producing more than 60,000 checks per hour. Still, there’s no comparison
to the efficient, safe, and secure transfer of funds capable with the push
of a button, as shown in the photo on the right. The Federal Government
saves 62 cents for every check converted from paper to electronic format.

258

DEPARTMENT OF THE TREASURY

MAKING GOVERNMENT MORE EFFECTIVE—Continued
The Budget provides funding for FMS’ electronic initiatives, such as: Pay.gov, which is a Government-wide web portal to collect non-tax revenue electronically; Paper Check Conversion, which converts checks into electronic debits thereby moving funds more quickly; and Stored Value Cards, which
directly support military operations overseas. FMS also collects the Government’s non-tax delinquent
debt such as: loans owed to the Government, fines or penalties assessed by an agency, and overpayments made by Federal agencies. FMS collected $3 billion in non-tax delinquent debt in 2004.
In 2006, The Bureau of Public Debt (BPD) will continue its efforts to improve the efficiency of the
securities services it offers to retail investors. The cornerstone of this effort is BPD’s new TreasuryDirect system, which, when fully implemented, will enable investors to purchase and manage all of
their Treasury securities holdings online through a single portfolio account. The system currently
offers both Series I and EE savings bonds in electronic form and holds more than $1.3 billion in more
than 250,000 accounts.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible for the regulation of the alcohol and tobacco industries, and the collection of approximately $15 billion annually in alcohol,
tobacco, firearms, and ammunition excise taxes. TTB protects the consumer by ensuring that alcohol
beverages are labeled, advertised, and marketed in accordance with the law, facilitates the import
and export trade in beverage and industrial alcohols, promotes voluntary tax compliance, and enforces the provisions of the Federal Alcohol Administration Act. In 2006, TTB anticipates receiving
and screening more than 100,000 label applications, more than 400,000 tax returns and operational
reports, and more than 4,000 applications for permits to enter the alcohol and tobacco industries. In
2006, TTB will process an estimated 16 percent of its label applications electronically, up from just
three percent in 2003. The Budget proposes to establish user fees to cover the costs of TTB’s regulatory functions under its Protect the Public line-of-business. The new user fees include filing fees for
Certificate of Label Approvals, proposed formulas, and permit applications. The industry should pay
for the benefits it receives from TTB’s regulatory efforts.
The 2006 Budget proposes to consolidate the Community Development Financial Institutions Fund
into a new economic and community development program to be administered by the Department of
Commerce. The new program would be designed to achieve greater results and focus on communities
most in need of assistance. Treasury will continue to oversee the New Markets Tax Credit program.

THE BUDGET FOR FISCAL YEAR 2006

259

Update on the President’s Management Agenda
The table below provides an update on the Department of the Treasury’s implementation of the
President’s Management Agenda as of December 31, 2004.

Human Capital

Competitive
Sourcing

Financial
Performance

E-Government

Budget and
Performance
Integration

Status
Progress
Arrow indicates change in status since evaluation on September 30, 2004.
Treasury has strengthened its management and is working to achieve results at all its bureaus. Treasury
implemented a new Department-wide comprehensive human capital strategic plan and accountability system,
setting the stage for continued progress in narrowing skills gaps, establishing leadership succession strategies,
and ensuring that employees are held accountable for results. As a result of competitive sourcing studies, the
Treasury Department anticipates savings of $185 million over the next five years. IRS employees developed an
efficient organization plan. The Department has a strong competitive sourcing plan to generate more savings
over the next year. In financial performance, Treasury received a clean audit opinion on its financial statements
for the fifth year in a row, performed monthly three-day closes, and for the past three years, completed its
accountability report in just 45 days after the end of the fiscal year. In addition, the Department has improved
the security of its information technology systems and is improving its capital planning process. This year the
Department will focus its efforts on developing an Enterprise Architecture and ensuring that its information
technology projects are within 10 percent of cost, schedule, and performance goals. Finally, the Department
improved its budgeting by reporting the full cost of program performance.

Initiative

Status

Progress

Eliminating Improper Payments
In 2005, an estimated 22 million families will receive $39 billion in Earned Income Tax Credit (EITC) payments to
reward work and lift them out of poverty. Unfortunately, due to mistakes and fraud, more than one EITC dollar in
four is paid in error. The IRS is piloting new strategies, such as qualifying child certification, to target the most
significant causes of error. (Because this is the first quarter that agency efforts in the Eliminating Improper
Payments Initiative were rated, progress scores were not given.)

260

DEPARTMENT OF THE TREASURY

Department of the Treasury
(In millions of dollars)
Estimate

2004
Actual
Spending
Discretionary Budget Authority:
Internal Revenue Service ..................................................................................
Financial Management Service .......................................................................
Departmental Offices ..........................................................................................
Bureau of Public Debt .........................................................................................
Inspectors General ...............................................................................................
Tax and Trade Bureau:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
Financial Crimes Enforcement Network .......................................................
Community Development Financial Institutions Fund .............................
All other ....................................................................................................................
Total, Discretionary budget authority .................................................................
Total, Discretionary outlays ...................................................................................
Mandatory Outlays:
Payment where earned income exceeds liability for tax:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
Payment where child credit exceeds liability for tax:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
Payment where health care credit exceeds liability for tax:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
Interest payments on advances to the black lung disability fund
trust fund:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
User fees Tax and Trade Bureau:
Legislative proposal ........................................................................................
Continued Dumping and Subsidy Offset Act:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
Internal revenue collections for Puerto Rico:
Existing law ........................................................................................................
Legislative proposal ........................................................................................
All other ....................................................................................................................
Total, Mandatory outlays ........................................................................................
Total, Outlays ..............................................................................................................
Credit activity

2005

2006

10,185
228
240
174
140

10,236
229
220
174
144

10,679
236
232
177
150

80
—
58
63
497
10,671

82
—
72
56
6
11,207

62
29
74
8
5
11,642

10,591

11,412

11,755

33,134
—

33,790
—

34,132
81

8,857
—

13,516
—

13,180
34

82
—

91
—

103
99

651
—

675
—

696
3,343

—

—

29

214
—

293
—

1,608
1,608

336
—
2,672
44,644

404
—
2,160
45,259

303
56
2,354
41,336

55,235

56,671

53,091

THE BUDGET FOR FISCAL YEAR 2006

261

Department of the Treasury—Continued
(In millions of dollars)
Estimate

2004
Actual

2005

2006

Direct Loan Disbursements:
Community Development Revolving Loan Fund .......................................
Total, Direct loan disbursements .........................................................................

7
7

7
7

—
—

Guaranteed Loan Commitments:
Air transportation stabilization fund ...............................................................
Total, Guaranteed loan commitments ................................................................

30
30

—
—

—
—


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102