The Internal Revenue Service has a lot riding on development of a new generation of computer software to maximize its detection of income tax fraud. A highly automated “Tax Return Review Program,” long under development, could potentially boost the agency’s take by billions of dollars in the coming years.
Which is why it was so surprising when agency officials disclosed recently that the $253 million project had been put on hold – the victim of some technical problems and budget cuts ordered by Congress. Without the new system, the IRS enforcement team will have to limp along with an outmoded and cumbersome system.
There are other project delays and setbacks like this one that illustrate how a once premier tax collection agency has been trimming its sails and forgoing billions of dollars a year in additional tax revenue because of budgetary and policy decisions driven largely by Republican lawmakers.
Furious about a series of scandals at the agency, including officials targeting the tax-exempt status of conservative and Tea Party political groups during the 2012 election – House Republicans have helped force the IRS to absorb about $800 million in budget cuts in recent years through a combination of savings, reductions in services and delays in new technology. The IRS budget was reduced from $12 billion to $11.2 billion in 2014.
Rep. Ander Crenshaw (R-FL), chair of a House Appropriations subcommittee that oversees the IRS, blasted the agency during a hearing last month on the Obama administration’s request for an additional $1.3 billion of funds for the IRS in fiscal 2015.
“An agency that has targeted groups based on political belief, spent outrageous amounts of hard-earned taxpayer dollars on lavish conferences and videos has no business seeking a 10 percent budget increase,” Crenshaw said. “It must clean up its act.”
IRS Commissioner John A. Koskinen acknowledged that his agency had lost the confidence of taxpayers and members of Congress “in regard to the way we manage operations.” But Koskinen warned that lawmakers were jeopardizing billions of dollars of future federal tax collections because of the punitive budget cuts.
“Essentially the federal government is losing billions in revenue collections to achieve budget savings of a few hundred million dollars” of operating funds, he said in prepared remarks. “The IRS estimates that for every $1 invested in the IRS budget, it produced $4 in enforcement revenue.”
The IRS has become a favorite target in Washington – both feared and loathed for its substantial powers to investigate and punish taxpayers and grudgingly respected for its ability to collect $2.9 trillion a year in revenues to operate the government, process 148 million individual tax returns and issue 118 million refunds totaling $314 billion. Following the enactment of the Affordable Care Act and it’s many tax and subsidy related provisions, the IRS has also been given substantial added administrative responsibilities.
Democratic Sen. Chuck Schumer’s recent proposal to turn millions of unpaid tax bills over to private debt collectors renewed a controversy over why the IRS can’t do a better job of collecting from tax deadbeats and scofflaws.
The gap between what is owed the government and what is collected has long been substantial. The Government Accountability Office (GAO) pegged the unpaid taxes at $300 billion as of fiscal 2010 – and others have placed the total much higher.
The impact of the budget cuts over the past four years have been particularly brutal on a core mission of the IRS – collecting as much revenue owed the government as possible.
Total annual IRS collections of unpaid taxes peaked at $59.2 billion in fiscal 2007 and then dropped to $53.35 billion in fiscal 2013, according to IRS data. The vast majority of those collections were obtained by IRS revenue officers using an array of investigative tools and sleuthing.
Yet the number of front-line revenue agents – the heart of the IRS enforcement and collection operation – has plummeted from a high of 6,042 in 2010 to 4,748 in 2013. Overall, tax enforcement workers at all levels tumbled from 22,710 in fiscal 2010 to just 19,531 last year, according to the IRS.
At the same time, the total number of taxpayer examinations or audits declined from 1.58 million in 2011 to 1.4 million in 2013 – or about 11 percent.
Michael D. Sullivan, a veteran taxpayer consultant and former IRS revenue officer, said in an interview with The Fiscal Times that “it’s really amazing” that Congress has crippled the IRS tax collection system with misguided budget cuts in recent years.
“The one agency that can collect the money and put it back in the system, they don’t fund it,” he said. “It’s almost hard to believe for me that they don’t do that. We need money and they lay off the collectors. There’s some stupidity . . . that goes on there. If you had an outside person come in there who was a true CEO of a regular company, the first thing they would go after is the receivables . . . and go after the people who don’t pay,” Sullivan added.
Others say the problem is more complicated than that – a combination of inadequate funding, management shortcomings and lack of imaginative ways to get around tough cuts that virtually every other major federal agency has had to live with. A recent GAO study of IRS’s enforcement problems argued that simply spending more money on the IRS isn’t the solution.
“The IRS does need to do a better job of managing its programs,” James R. McTigue, a GAO director who specializes in IRS operations, said in an interview yesterday. “However, dealing with the loss of senior management following the scandals doesn’t help either. Nor do the budget cuts that the agency has been enduring help – especially since the agency has been tasked with more and more responsibilities over the past couple of years.”
“We have begun to see declines in enforcement revenue and in some of the key programs,” he added, noting that the IRS has reduced their target audit rate of individual tax audits from 1 percent to 0 .8 percent – a 20 percent reduction. “Clearly that is a result of fewer resources. And when you’re auditing fewer tax returns, that’s going to open up the risk for greater avoidance and lower collections through enforcement.”
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