With just weeks remaining before the new tax season opens, Congress walloped the IRS with $341 million in budget cuts. That’s in addition to earlier slashes to the IRS budget of more than $1 billion since 2010, resulting in nearly 13,000 employee layoffs.
Is that a wise choice or an act of spite toward an unpopular agency?
Congress touted that the cuts are much needed but to others it looks like something else – revenge. You see many in Congress are still fuming about this year’s earlier tax-exempt organization scandal and those missing Lerner emails. There are other members of Congress that are angry about reports of wasteful spending. And still there are other members of Congress that see this as a great opportunity to keep IRS from properly implementing pieces of the Affordable Care Act – yes, the same Act that Congress pushed through a few years ago, tasking the IRS with related administrative responsibilities.
Rep. Peter Roskam (R-IL), the newly elected Chair of the Oversight Subcommittee of the House Ways and Means Committee, minced no words about the agency’s budget, referring to the IRS as a “rogue operation” earlier this year. He said about the IRS and cuts to the budget, at the time “This is an effort to get this agency under control. They have not faithfully executed the law. They have not faithfully used the resources that they have been entrusted with, and we in the House are determined to get this right and to rein them in.”
So if Representative Roskam is right, the IRS by getting less funding will have no choice to run its operations more efficiently
Will the IRS cuts paralyze the agency and allow taxpayers to slip through the system?
Now if you are still thinking that this latest move by Congress will paralyze the IRS, let’s put the amount of cuts in perspective.
Since fiscal year 2010, Congress has cut IRS funding by almost $1.2 billion, or 10%, forcing the agency to severely reduce its full-time, permanent workforce by 13,000 employees. This occurred even as the country added approximately 7 million new taxpayers.
But let’s go back to 1995 – that’s almost 20 years ago. In 1995, the IRS had 114,064 workers to administer tax laws and process 205 million tax returns. By the end of 2013, staffing had fallen to 83,613 to administer a more complicated tax code and process 242 million tax returns and other forms. When I run these numbers I get 26% fewer IRS employees processing 20% more tax returns. Contrary to what Representative Roskam thinks, these statistics show the IRS doing an extraordinary job keep up with the functions it is charged with.
Additionally, the IRS may be one of the smarter investments for Congress. Treasury Secretary Jack Lew said last year that the IRS yields $6 in collections for every $1 it receives for tax enforcement. The agency is already working with a smaller budget than it had five years ago — $11.3 billion in 2014 compared to $11.5 billion in 2009.
So what’s another $341 million cut in funding?
The IRS still has $10.95 billion to work with in 2015. This will bring the agency’s budget below the sequester level and below the level that was in place in fiscal year 2008. This funding level was still sufficient even then for the IRS to perform its core duties, including taxpayer services and the proper collection of funds. Taxpayers back in 2008 were still being audited, investigated, prosecuted, and levied. Back in 2008 the IRS was also starting its major initiative to pursue taxpayers with undisclosed foreign bank accounts. 2015 should be no different. But don’t get me wrong, the IRS will still need to streamline and make better use of its budget as it now has less.
So how can the IRS do more for less?
Remember, the IRS is already yielding $6 in collections for every $1 it receives for tax enforcement. I know a lot of business people who would not mind having that rate of return. Therefore, cuts in tax enforcement should be minimal.
1. More tax returns being electronically filed and electronically processed. About 150 million returns were filed in 2014 of which more than 96% were electronically filed. The IRS issued more than 61.6 million refunds for approximately $179.8 billion. The average dollar refund is about $3,000, and the IRS has directly deposited more than 52.7 million refunds to taxpayers thus far, a 0.7% increase over the same period last year.
2. Increase access to tax information through the internet. Each tax filing season the IRS provides services to taxpayers to help them fulfill their tax obligations and by meeting taxpayers’ increasing demand for self-service and electronic service options, the IRS can deliver tax information without tying up human resources. Much of this has been accomplished through the IRS’ website. As a result of these and other improvements to the IRS website and because there were no significant tax law changes enacted in 2013, the volume of phone calls to the IRS’ toll-free lines has decreased.
3. Going Paperless. The IRS generated $60 million in annual printing and postage savings by eliminating the printing and mailing of selected tax packages and publications, and by transitioning to paperless employee pay statements.
4. Reducing Office Space. In an effort to promote more efficient use of the Federal government’s real estate assets and generate savings, in 2012, the IRS announced a sweeping office space and rent reduction initiative that over two years is projected to close 43 smaller IRS offices and consolidate space in many larger facilities. These measures will reduce annual rent costs by more than $40 million and reduce total IRS office space by more than 1.3 million square feet by the end of 2014.
When you add the savings for going paperless and reducing office space, this results in the IRS spending $300 million a year less. Remember the latest cut is $341 million. Maybe Congress has this right?
5. IRS Working With Other Federal Agencies. For example, the IRS criminal and civil enforcement organizations work with the U.S. Department of Justice Tax Division to shut down abusive tax schemes as quickly as possible in an effort to protect taxpayers from potential additional financial harm. Parallel civil and criminal investigations are an effective and aggressive IRS approach that halts these schemes quickly and permanently. A civil injunction against the promoter stops the scheme and prevents additional ‘clients’ from investing. In addition, the Criminal Investigation Division shares abusive tax scheme investor lists with the civil operating divisions to ensure investor tax returns are considered for examination (audit). Also, the Department of Justice, Department of Treasury and Homeland Security entered into a joint effort to enforce the “National Money Laundering Strategy” to continue the nation’s efforts to dismantle corrupt money laundering schemes.
6. IRS Working With Foreign Financial/Tax Agencies. International tax compliance is a top priority of the IRS. The IRS is vigorously pursuing tax cheats around the world, no matter how remote or secret the location. The IRS Criminal Investigation Division (“CID”) is working to develop new ways to share information and foster cooperation among other U.S. government agencies and foreign government counterparts. To enhance its international efforts CID has expanded its overseas presence by assigning attachés to key foreign embassies and consulates. Attachés establish strong ties with foreign government and law enforcement partners working with them to gather and share information about possible financial crimes. CID also actively participates in a number of international financial task force groups to investigate significant areas of noncompliance and criminal activity. These groups include INTERPOL, the Terrorist Finance Working Group (TFWG), the Financial Action Task Force (FATF), and the Organization for Economic Co-operation and Development (OECD).
Don’t Take The Chance And Lose Everything You Have Worked For.
Protect yourself. If you are in danger of wage garnishments or bank levies or having a tax lien placed against your property, stand up to the IRS and your State Tax Agency by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.
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