Politics

IRS Warns Of Dire Budget Woes Impacting Ability To Operate

A new report from the IRS says that it’s current budget is too low for it to continue to effectively undertake its broad mission.

The Internal Revenue Service Advisory Council 2015 Public Report was published on November 18th, and argues that the agency is simply unable to get its job done in 2015 when it is still funded at 2009 levels.

That’s because the U.S. Congress has seen fit to reduce the IRS budget at the same time as the agency has been forced to take on numerous new responsibilities. As John Oliver rightly points out the IRS is like your a$$ – no one likes it but everyone needs. Then again, the IRS may have done some political targeting and its possible stonewalling is not going to make it any friends on the Republican side of the aisle.

IRS Budget Cuts

Impact of budget cuts on the IRS

When you add up all the budget cuts related to sequestration and other adjustments, overall funding for the IRS is down more than 17% on an inflation-adjusted basis since fiscal year 2010, and is currently under fiscal year 2009 levels. Keep in mind that, besides these budget reductions, the agency is also dealing with the impact of new taxpayers and the unfunded mandates of significant new programs, such as administration of the Patient Protection and Affordable Care Act (Obamacare) and other laws.

IRS Budget Cuts

The agency has dealt with these budget cuts by scaling back various activities, freezing hiring, limiting training, and trying as much as possible to reallocate resources among its four appropriations accounts and other programs.

Also keep in mind that these funding cuts hurt honest taxpayers as they tried to file their taxes this year. In fact, according to recent data, less than half of the calls to the IRS were answered when taxpayers called for help. Moreover, even when taxpayers did get through to an agent, they typically had to wait at least 20 minutes, and the agency is only willing to answer “basic” tax questions.

Many IRS field offices have also closed in the last few years, which makes it much more difficult for many taxpayers (especially low income and elderly) to get assistance with their tax returns.

These massive funding cuts also mean less enforcement, as the agency is facing a reduced ability to curb tax fraud, tax evasion and other illegal activities.  The agency says that both individual and business audit rates are now at their lowest levels in 10 years, and are likely to continue to decrease unless some budget cuts are reversed. Less audits also means less voluntary compliance, which is setting the stage for a bigger problem in the future.

IRS Budget Cuts

The lack of enforcement is particularly problematic as statistics show the return on investment for enforcement is high. Based on data from the Treasury Department, each extra $1 spent on enforcement yields $6 of extra revenue from collection of taxes owed.

Statement from 2015 IRSAC report

“Recent deficiencies in funding are eroding the significant investments and substantial progress made in the last two decades in modernizing and streamlining the IRS, and making it more efficient. These investments were made at the behest and with the support of House and Senate Congressional leaders in both parties, the Treasury Department and IRS, and private individuals, all of whom care deeply about both particular issues and the core integrity and effectiveness of our tax system. The funding deficiencies compromise the IRS’ ability to deal with the challenges now before us and those yet to come, and may have even more dramatic and costly future impacts on our system of voluntary compliance and self-assessment. An efficient, well-functioning IRS is absolutely critical to every aspect and program of our federal government. State governments are also adversely affected, as most state tax systems “piggyback” off aspects of the federal tax system.”

See full PDF below.