3.30.10. Cost Estimate Reference

(1) Document 6746, Cost Estimate Reference, is the companion document to this IRM ( FY2015- current revision). Document 6746 provides a wide variety of costing information including:

• Labor costs and staff hours for processing tax returns and performing related functions in the Submission Processing campus(es) computed using national totals and rates.

• Related non-staff costs such as supplies and postage.

(2) The information referenced in the cited examples is based on FY 2022 Work Planning and Control (WP&C) data and Document 6746, Cost Estimate Reference for FY 2022. Document 6746 exhibits will not reflect changes after the FY 2022 reporting period. Document 6746 may be found in the Forms/Pubs/Products Repository. See https://publish.no.irs.gov/ephome.html. Document 6746 may also be found on the Submission Processing Home Page website under the heading of Programs & Information, Standard Procedures and Aids. See https://win.web.irs.gov/SP . When researching, be sure to consider any changes in reporting methods (e.g., Organization Function Program (OFP) codes) which may have taken place or the implementation of new programs.

(3) Also, consider any processing changes which have or will be implemented since the reporting period. WP&C data for more current periods is on the Control D system or the PCX Reports in Business Objects . Work Schedule and Work Plan information including assumptions, expected workload, and anticipated standards for upcoming reporting periods are also available.

(4) This IRM and associated exhibits from Document 6746 uses national totals and rates. It may be necessary in some instances to compare and use local data when deciding the cost of a local change.

(5) Keep in mind that sometimes it will be necessary to

• Make assumptions and modify the costing provided

• Review additional sources of data

• Research for more current data

• Include costs for procedures not in this IRM

• Or use local (specific) Submission Processing (SP) campus data

(6) This IRM and associated exhibits from Document 6746 includes the following general information:

• Salary and Benefits

• Production, Direct Staff Hours, and Cost of Functions and Programs by Organization

• Processing Fall-Out Percentages and Support Ratios

• Functional Cost per Thousand

• Keystroke Information

• Volumes Processed by Submission Processing Campuses (SPC)

• Business Master File (BMF) Program Costs per Thousand

• Employee Plan Master File (EPMF) Program Costs per Thousand

• Individual Master File (IMF) Program Costs per Thousand

• Miscellaneous Non-Labor Costs (e.g., Postage, Supplies, Federal Records Center Charges)

(7) Most of the information was extracted from WP&C data as recorded for FY 2022 and/or FY 2022 Document 6746.

(8) Hourly staff costs and workload volume (production) rates are a recapitulation of WP&C for FY 2022 and/or FY 2022 Document 6746.

(9) SPC WP&C figures represent the volume of returns and documents processed at the SP campuses. These figures may differ slightly from projections developed by Research, Applied Analytics and Statistics, National Headquarters Office of Research which are based on historical data of returns processed (posted to accounts) and are updated to reflect the anticipated effect of tax law changes, reporting requirements, etc.

(10) OFP code titles and abbreviations are from IRM 25.8.1, OFP Codes Overview. The OFP Code Resource Center On-line may be accessed at http://ofp.ds.irsnet.gov/index.asp. This website allows the user to query the 5995a database for specific OFP definitions. If the OFP Home Page link is not working, contact the OFP administrator.

(11) Organization code numbers are truncated to the first two digits.

(12) Figures shown in tables and exhibits are rounded for ease of display although the additional places are retained for calculation. The following guidelines apply:

(1) The Submission Processing’s Resource Section is responsible for the information in the IRM. The Resource Section makes the necessary changes on a yearly basis.

(2) The Director of Submission Processing is responsible for policy related to this IRM.

(3) The team manager is responsible for ensuring the IRM is timely submitted to Publishing each year.

(4) This IRM is provided to analysts to assist in preparing cost estimates. When additional assistance is needed, contact the Resource Section (SE:W:CAS:SP:PM:R).

(1)

(1) An assumption is an explicit statement used to describe the present and future environment upon which the cost estimate is based.

(2) Assumptions support and reasonably limit the scope of the cost estimate. They help define the parameters of the cost estimate.

(3) Assumptions may pertain to any number of aspects of the cost estimate.

(4) It is important to include assumptions as part of your cost estimate. Some of the reasons to do so are to:

1. Document the thought process behind the cost estimate.

2. Make it easier for others to review and understand the cost estimate.

3. Make it easier for you or someone else to update it in the future.

(5) Some examples are shown in the table below:

(6) It is important to include assumptions as part of your cost estimate. Some of the reasons to do so are cited in the preceding paragraph (4). Please see above for details.

(1) A flowchart is a diagram that shows step-by-step progression through a procedure or system, especially using connecting lines and a set of conventional symbols.

(2) As defined above, a flowchart is typically a diagram. In lieu of a diagram, you can also identify the work flow in an SP campus by listing each task or activity that will be performed in the process and the corresponding OFP code.

(3) Be as specific as possible by showing each task that will be included in the cost estimate.

(4) If clerical support is necessary to accomplish the workload, include these hours and costs in your cost estimate.

(5) See flowcharts in Document 6746, Exhibits 19 through 27 for examples of some flowcharts.

(6) The following table shows an example of a workflow process for an existing process. See Document 6746, Exhibit 19 for Receipt and Control Flowchart.

(7) Some functions, such as Mail Handling (Function 110), generally do not distinguish the type of tax return or document being handled. In these instances, Program Code 00000 or for Receipt and Control Functions Program Code XXXXX is typically used for reporting purposes. For example, Program Code XXXXX is used in Functions 110, 140, 180, 190, and Program Code 00000 is used in Function 510. Please see Document 6746, Exhibit 19 when preparing a cost estimate for tax returns or documents for the suggested way to cost Receipt and Control functional item due to their special nature.

(8) Program codes may change as the returns or documents are processed through the SP campus functions.

(9) In other functions, such as Suspense Correction (Function 350), the returns or documents are often identified by master file and will use a combined program code. Employees in these functions are generally assigned workload by master file rather than return type. Some examples of these are:

(10) To do a cost estimate for a new process, refer to IRM 3.30.20, OFP Codes Overview, for an explanation of function and program codes to help you develop the workflow of the new process.

(1) Document 6746, Exhibits 19 through 28 for FY 2022 contain "Functional Cost per Thousand" for existing work processes. These exhibits show the cost to process a volume of 1,000 through each of the primary Submission Processing Campus(es) (SPC) functions.

(2) Volumes for some steps in an exhibit vary from 1,000 when:

1. Not all items are handled in that step

2. Items are handled more than once in that step

3. Another function's volume decides non-volume program hours

(3) The Functional Cost per Thousand exhibits of Document 6746 provide the total direct staff hours (excluding Quality Assurance) and related costs to process returns or documents through a function or related functions.

(4) The following example shows the combined cost of processing 1,000 non-remittance returns, for FY2022 through the Receipt and Control functions.

(1) The direct labor costs are the hours and costs it takes to perform the actual work. The direct labor cost does not include management and supervision, overhead, or benefits, but it does include overtime, night differential and locality pay.

(2) Although Quality Assurance is generally considered a direct labor cost, it is not computed until after the non-Quality Assurance hours and costs are calculated.

(3) SP campus labor costs for existing programs should always have an OFP code associated with it.

(4) You may use Document 6746, Exhibits 4 and 5 to compute direct labor costs for existing OFP codes included in the SP campus work flow diagram or flow chart.

(5) First, look at Document 6746, Exhibit 4 to locate the function/program you need. Remember these are arranged by organization.

(6) An asterisk appears to the left of a function/program in Document 6746, Exhibit 4 when production/hours are reported by more than one organization.

(7) If an asterisk appears for the entries, see Document 6746, Exhibit 5 which provides a list of all the organizations reporting that function and program.

(8) It is important to determine what data to use for your cost estimate. Depending on the scope of the cost estimate, you may use data from all or only some of the organizations listed.

(1) To calculate the labor cost follow the steps below:

1. Make an assumption to identify the anticipated volume (production) for your cost estimate.

2. Locate the OFP code in Document 6746, Exhibit 4 or 5 to obtain the adjusted rate and cost per staff hour.

3. Divide the volume by the adjusted rate to obtain staff hours.

4. Multiply the staff hours (obtained in step 3 above) by the cost per staff hour for that OFP to obtain the direct labor cost.

5. Repeat steps 2–4 until the cost for all OFP codes have been decided.

6. Add the staff hours for each OFP to obtain the staff hours for the process.

7. Add the cost for each OFP code to obtain the labor cost for the process.

(2) Cost estimate information is easiest to read if it is set up in columns. Below is an example of how this might look. It is best to use Microsoft Excel to prepare the cost estimates for more accurate (computation of numbers used) information.

(1) Quality Assurance (QA) is that portion of time and related costs that are used to review the work performed in the SP campus(es).

(2) Although QA is considered a direct cost, it is calculated as a percentage of the direct labor costs to do the actual work.

(3) This percentage is the total of the authorized percentages for Quality Review as computed in the Work Plans.

(4) The cost per staff hour for all Function 880 (Quality Assurance) hours combined is then used to calculate the labor cost.

(5) The staff hours and costs for QA changes are calculated based on the FY 2022 QA figures in Document 6746, Exhibit 3 Table (B).

(6) The staff hours and costs for QA are added to Direct Labor staff hours and cost before Overhead is calculated.

(7) Follow the steps below to obtain Quality Assurance hours and costs:

1. Multiply the direct hours in your cost estimate by the QA percentage (Document 6746, Exhibit 3 Table (B)) to obtain the number of 880 hours required.

2. Multiply the QA hours (from step 1 above) by the QA cost per hour (Document 6746, Exhibit 3 Table (B)) to get the cost to perform the QA function.

3. Add the QA hours to the direct hours.

4. Add the QA cost to the direct cost.

(8) An example for computing Quality Assurance using FY 2022 data is shown below. This example is a continuation of the example used in IRM 3.30.10.3.5(2).

(1) Overhead hours are those staff hours used for administrative functions, leave and training. Overhead costs are reported as Function 990.

(2) There are several different Overhead percentages to choose from when preparing a cost estimate.

(3) The most important thing to remember is to select the Overhead percentage that best fits what is represented in your cost estimate. There are different Overhead percentages for Wage and Investment (W&I) and Small Business and Self Employed (SBSE). Refer to Document 6746, Exhibit 2 Table (A) for specific details.

(4) Management and Supervision costs are generally not included in the Overhead percentage for most cost estimates we prepare.

(5) Management and Supervision costs are usually only included in cost estimates for:

• New programs

• Legislative changes

• Reimbursable programs

• Significant increases or decreases in hours

(6) Management and Supervision hours are reported by the Submission Processing campus(es) in Function 990 Program 591XX.

(7) Use the following table to help you select the appropriate Overhead percentage for your cost estimate.

(8) An example for computing Overhead is shown below with the assumption of a specific organization (WI SP) is used without Mgmt and Supv. This example will continue with the previous example used in IRM 3.30.10.3.6(8). Normally, when just one Org is shown in a cost estimate, the correct overhead data would be found in Document 6746, Exhibit 2 Table B.

(9) When your cost estimate pertains to a new process, you may want to include overhead hours in your cost estimate for additional training or management and supervision.

(10) Any additional needs should be fully documented and identified as early as possible, so they can be considered in the Submission Processing (SP) Campus Work Plan process.

(1) The government contribution toward the cost of the items listed below are Benefits:

• Social Security (both FICA and Medicare)

• Federal Employees Group Life Insurance (FEGLI)

• Federal Employee Health Benefit (FEHB)

• Federal Employees Retirement System (FERS)

• Civil Service Retirement System (CSRS)

• Thrift Savings Plan (TSP)

(2) Use Exhibit 1 Table (A) for Benefits percentage for the appropriate organization. The Submission Processing WI Benefits percentage for FY2022 is 37.90 percent.

(3) Compute Benefits on staff costs only. Since Benefits represent a monetary contribution, there is no related hour computation.

(4) Benefits are computed after all of the following costs have been computed:

• Direct cost (excluding QA)

• Quality Assurance

• Overhead

(5) To compute the Benefits cost, take the following steps:

1. Use Document 6746, Exhibit 1 Table (A) and find the appropriate Benefits percentage (we will use Submission Processing WI).

2. Multiply the Subtotal Labor cost by 43.39% .

3. Add Benefits cost to the Subtotal Labor to obtain Total Labor cost.

(6) An example for computing Benefits for Submission Processing. This example will continue with the previous example used in IRM 3.30.10.3.7(8).

(1) Non-labor costs are expenses incurred for things other than salaries paid to perform the work. Examples of non-labor expenses are:

• Postage, Printing and Shipping

• Supplies

• Federal Record Center Charges

• Basic support

(2) Non-labor costs are generally not a mandatory item in a cost estimate. They may be included when they are a significant part of the cost.

(3) It is important to keep labor and non-labor costs separate so staffing adjustments are not made based upon non-labor costs. See Document 6746, Exhibits 41 through 43 for additional information on non-labor costs.

(4) If you need additional assistance, contact the Resource Section, SE:W:CAS:SP:PM:R.

(1) The first part of Document 6746 Cost per Thousand Exhibit provides the Pipeline Processing Costs for a return or document. To obtain each of the listed costs, logical divisions of processing steps were made, and their times and cost totaled.

(2) When applicable, a cross reference to the related Document 6746 Functional Cost per Thousand exhibit is shown by the processing step.

(3) A Pipeline Processing subtotal is provided and summary costs are computed on that amount. In many instances, it is appropriate to limit the cost estimate to those steps. At other times, it may be necessary to include some or all of the additional steps in the Specific Non-Pipeline Costs components, which are also provided.

(4) Using the previous Error Correction/Resolution example in IRM 3.30.10.8(4) above, we determined only 92 of the 1,000 documents will be processed by Error Correction/Resolution. Using this volume, we can compute the staff hours and costs needed to process that volume.

(1) Four major processing components have been included in the Document 6746 Specific Non-Pipeline Costs portion of the Cost per Thousand. These steps take place after initial processing of the return.

(2) Depending upon the purpose of the cost estimate, you may decide to include some or all of these steps. In each instance, you must consider the purpose of the cost estimate to decide what must be included.

(3) Subtotal the Specific Non-Pipeline costs or you may subtotal all processing steps and re-compute the three additional components to decide Total Labor. Either way may be appropriate, but be sure to clearly identify what your figures represent.

(1) Each of the two components of the Document 6746 Cost per Thousand (Pipeline Processing Costs and Specific Non-Pipeline Costs) includes summary data which includes add-on costs for Quality Assurance, Overhead, and Benefits.

(2) For display purposes, each of the two components of the Cost per Thousand includes a subtotal and related summary information. In some instances, you may prefer to subtotal steps from more than one component and compute the summary information on the composite. Discretion should be used to decide when it is best to combine or keep components separate (e.g., when resource impact must be identified by funding activity.) In either case, you can use the Summary format from Document 6746 Cost per Thousand Exhibits 33, 34, and 35 to compute the following additional costs:

• Quality Assurance

• Overhead

• Benefits

(3) When all these add-ons have been included, the Total Labor Cost per Thousand is obtained.

(4) The first add-on is Quality Assurance (QA). QA now only includes Quality Review. Use the following guidelines to compute QA:

1. Compute QA hours at 3.2 percent for FY 2022.

2. Compute QA cost at $21.73 for FY 2022.

3. Add QA to the labor subtotal to obtain the Subtotal - Direct Labor

Note: See Document 6746 Exhibit 3 Table (B) for current QA percentage and cost per hour.

(5) The second add-on is Overhead hours and cost. Use the following guidelines to compute Overhead:

1. Compute Overhead hours at 53.00 percent (using here WI Submission Processing w/o Management and Supervision) of the subtotal labor hours

2. Compute Overhead cost at $18.37(using here WI Submission Processing w/o Management and Supervision) for each Overhead hour required

3. Add Overhead to Subtotal Direct Labor to obtain the Subtotal - Labor

Note: See Document 6746 Exhibit 2 for Overhead percentage and cost per hour for other breakouts.

(6) An alternative computation for Overhead is calculated to include Management and Supervision.

(7) The final step is to add the Benefits cost as follows,

1. Compute Benefits cost at 43.39 percent (using here WI Submission Processing percentage) of the Subtotal - Labor hours

2. Add the Benefits cost to the Subtotal - Labor to obtain the Total Labor Cost per Thousand

Note: See Exhibit 1 for all applicable Benefits percentage(s).

3. Compute Benefits as a percentage of cost only. Benefits are not computed on hours.

(8) Use the information in Document 6746 Exhibit 3 Table (A) to convert Total Labor Hours into Staff Years, if necessary.

(9) The Document 6746 Cost per Thousand exhibits represent the most frequently used cost estimate percentages, costs, and elements. Management and Supervision costs have been shown at far right of exhibit.

(10) On occasion, you may need to include this cost. The footnote entries on each exhibit provide the percentages and hourly costs which can be used. The Total Labor Cost per Thousand for each of these variations is also provided.