Fraud-Seeking IRS Agents Pulling in More Dough
Life + Money

Fraud-Seeking IRS Agents Pulling in More Dough

iStockphoto/The Fiscal Times

More taxmen cometh, and they found more fraud.

Or at least they found enough errors in taxpayer returns to register a sharp increase in tax collections through beefed up auditing, a new report from the agency’s inspector general released Wednesday showed.

Despite a bad economy – or perhaps because of it -- the Internal Revenue Service last year registered its first increase in tax revenue generated by taxpayer audits since 2007. The IRS also racked up a 15 percent increase in revenue collected from settling outstanding tax cases compared to 2009, largely by resorting to enforcement tools like liens, levies and seizures, the report revealed.

The heightened emphasis on enforcement, a major initiative of the Obama administration, increased collections 18 percent to $57.6 billion in the fiscal year that ended September 30, 2010, up from $48.9 billion the previous year.

“Faced with the uptick in overall accounts receivable driven by the economy, (the agency) appears to be putting its resources to use in a relatively efficient way,” said a former top-ranking IRS official, who spoke with The Fiscal Times.

The latest annual report by the Treasury Department’s inspector general for tax administration gave the IRS a largely glowing report card. It noted the agency was able to boost its enforcement record despite extra work related to administering tax cuts in the 2009 stimulus legislation; the special provisions created in the tax code through health care reform; and the extra work associated with administering extended unemployment benefits and other jobs-related legislation.

“The IRS faced many challenges during fiscal year 2010, including implementation of provisions related to new tax legislation,” said J. Russell George, Treasury Inspector General for Tax Administration.  “Taken together, revisions to these laws represent the largest set of tax law changes in 20 years.”

The report noted that the IRS enforcement staff grew 19 percent between 2006 and 2010, with half of those new hires occurring in the 2010 fiscal year. That compares to the agency’s overall 4 percent increase in staffing during that period. 

The agency in 2010 was also able to reduce the number of outstanding unpaid tax investigations and accounts. But an expert said the decline was largely due to IRS agents casting aside, or shelving, more cases than in previous years.

The former high-ranking IRS official, who did not wish to be identified, said agents “shelve” cases during economic downturns because taxpayers are unable to pay the full amount owed.  In other words, the economic downturn may have inadvertently encouraged IRS agents to focus more attention on cases with the potential to generate revenue. “If a case has such a remote chance for collectability, they have to get it out of their inventory to make room for the stuff they can actively work on,” the official said. 

The inspector general’s report noted the IRS was having a difficult time grappling with the stimulus and health care reform laws, which added 56 and 42 new provisions to the tax code, respectively. “I’ve talked to people over there who were just entirely overwhelmed by figuring out how to make these tax provisions of the health and other laws work,” said Howard Gleckman, a senior fellow at the Urban Institute and author of the TaxVox blog.

Under the health law, the IRS must figure out a process for determining who will be eligible for a wide array of subsidies for purchasing health insurance, as well as who will be fined for failure to purchase plans. “This is an agency that has enough trouble doing its basic job of collecting income taxes, but we now have it running the country’s welfare system through the earned income tax credit and the child credit,” Gleckman said. “Soon enough, we’re going to have it running a large part of the country’s health care system. It’s not what the IRS is there to do.”