More Budget Cuts at the IRS Could Cost Billions
Policy + Politics

More Budget Cuts at the IRS Could Cost Billions


It’s not going to be a very happy holiday at the Internal Revenue Service.

The CRomnibus spending bill included another round of drastic budget cuts that are expected to cause big problems for the agency–which has seen its budget sliced by about $1.2 billion in the last four years and its staff reduced by about 13,000 over that same time period. The IRS’s $11.3 billion budget for 2014 is $840 million or 7 percent below the level appropriated in 2010 — the last year before Congress began cutting discretionary programs.


The current U.S. tax gap—the uncollected taxes each year due to fraud, underpayment, or accounting errors—is roughly $400 billion a year. Collecting even a quarter of that treasure would be worth an investment of less than half a billion dollars.

Last week, IRS Commissioner John Koskinen warned that the latest $346 million in cuts are going to further cripple the agency from fulfilling its expanding responsibilities—including enforcing the more than 40 new provisions under the Affordable Care Act.

Related: Budget Cuts and Mismanagement Boost IRS Tax Cheats

He also said the dwindling resources will likely cost taxpayers about $2 billion in uncollected revenue that the agency could have collected, if they were staffed sufficiently. He called the budget cuts a “tax cut to tax cheats,” saying it will be easier for people to get away with collecting fraudulent refunds since there will be fewer auditors to enforce the tax code.

“That means some people cutting corners on their taxes or not complying are going to get away with it, and that is a decision that Congress has made,” Koskinen said.

The issue is not new to the IRS. Over the last few years, the agency has experienced significant budget cuts and hiring freezes while at the same time dealing with an expanded role. But the latest cuts seem to have agency officials more concerned than ever.

“We’re well beyond cutting out any fat,” Koskinen told reporters at a press conference. “And we’re now into cutting, as people say, muscle headed toward bone.”

Related: Get Ready for the Tax Collector to Come Calling

Koskinen had previously told his workers to expect a hiring freeze and no overtime next year. But now the IRS chief said the budget cuts could mean another round of furloughs at the agency—adding that doing so would mean effectively shutting down the entire operation for a few days, as they did in the summer of 2013 under sequestration.

“People call it furloughs; I view it as: Are we going to have to shut the place down?” Koskinen said at a press conference on Thursday. “There is no way right now we can say that won’t happen.”

He said the final decision about how the IRS will proceed will be made by management officials in the coming weeks.

But the IRS won’t likely get sympathy from lawmakers on Capitol Hill--especially Republicans who targeted the agency’s budget in retaliation for unfairly scrutinizing Tea Party groups. The IRS has also previously been in trouble for its budgeting practices—including lavish spending on conferences in Las Vegas—which have given lawmakers more reason to be in favor of cutting the agency’s budget.

Meanwhile, Koskinen, who took office earlier this year in the aftermath of the spending scandals, has tried to convince Congress that slicing the IRS’s budget is detrimental to the country’s bottom line. He argued that the latest budget cut will directly lead to billions less in revenue.

As The Fiscal Times previously reported IRS collections have dropped in recent years. In 2013, the agency collected about $53.35 billion—down from $59.2 billion in 2007. The decline is likely explained by the reduction in front-line revenue agents whose job is focused solely on enforcement and collections. In 2010, the IRS had 6,042 of these workers—that dropped to 4,748 in 2013. And, overall, tax enforcement workers at all levels dropped from number 22,710 in fiscal 2010 to just 19,531 last year.

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