Internal Revenue Service Commissioner Douglas Shulman said proposed budget cuts to his agency would hurt tax enforcement and voluntary compliance.
The U.S. House has yet to recommend a specific budget level for the agency. The House set a funding level for a group of agencies including the IRS that would suggest a budget below the $12.1 billion the agency will receive this year. The IRS is seeking an increase of almost 10 percent in its budget.
“Cuts of this magnitude would be substantial and affect all of IRS operations,” Shulman said today in Washington before a Senate Appropriations subcommittee. He also said that “conspicuous drops” in enforcement could undermine tax compliance.
Shulman said that, without additional information reporting, the IRS has few levers it can use to attack the estimated $345 billion annual gross tax gap. That gap is the difference between taxes owed and taxes paid.
“We’ve, in many ways, tapped the easy money,” he said.
Shulman noted that recent efforts to improve information reporting, such as a requirement on businesses to report some purchases that was repealed this year, can run into political opposition.
He told Senator Jerry Moran, a Kansas Republican, that the IRS would no longer need $23.3 million it had sought for that information-reporting effort.
Senator Richard Durbin, an Illinois Democrat and chairman of the appropriations subcommittee that oversees IRS funding, said lawmakers are looking for $4 trillion in spending cuts or increased revenue over the next decade, putting pressure on spending requests.
“There’s been belt-tightening all around, and it’s affected your agency,” Durbin told Shulman.
Senator Mark Kirk, an Illinois Republican, suggested that the IRS consider allowing taxpayers to go to the agency’s website and fill out their tax forms, instead of buying Intuit Inc. (INTU)’s TurboTax or paying to use preparers such as those at H&R Block Inc. (HRB)
“This is an incredible drag on the economy,” Kirk said.
Shulman said the agency has higher information-technology priorities, such as completing a new version of its outdated account database.
“We need to build some core infrastructure,” he said.
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