IRS Enforcement at Risk as Collections Drop 9% Amid Cuts

Advocates for the Internal Revenue Service are renewing warnings that the U.S. government will lose money by starving the agency’s budget.

According to a report released yesterday, IRS enforcement actions yielded $50.2 billion in fiscal year 2012, a 9 percent drop from 2011 in part because of budget cuts.

The IRS shed 8,000 full-time positions from 2010 to 2012 including 5,000 front-line enforcement workers. That represents a 14 percent reduction, according to the report from the Treasury Inspector General for Tax Administration.

House Republicans are proposing to cut the IRS budget by 24 percent for the fiscal year that starts Oct. 1. In seeking to make their case, they point to overspending on agency conferences and bonuses to IRS executives involved in the scrutiny of Tea Party groups seeking tax-exempt status.

“Our concern is where the next step is arbitrarily cutting the budget,” said Edward Karl, vice president for taxation at the American Institute of Certified Public Accountants in Washington. “Oversight is appropriate. Effective administration is appropriate. But so is full funding.”

The Obama administration proposed a $1 billion, or 9 percent, increase for the IRS for the coming fiscal year. Danny Werfel, the agency’s acting commissioner, is scheduled to testify today before a House Ways and Means subcommittee.

In a statement earlier this year, the IRS said enforcement revenue totals in 2010 and 2011 were unusually high because they included revenue from the agency’s voluntary disclosure program for undeclared offshore accounts.

Economic Slowdown

“In addition, the economic slowdown contributed to lower enforcement figures, as most enforcement dollars collected resulted from audits of returns for years during the slowdown,” the agency said in its statement.

Some of the decline in collections may be the result of IRS policy changes. The agency’s Fresh Start Initiative was designed to reduce the number of tax liens filed and was created in response to concerns that the IRS was seizing property too aggressively.

The IRS also has been charged with implementing parts of the 2010 health-care law, diverting resources that could have been devoted to audits and collections.

Because of across-the-board budget cuts known as sequestration, the IRS furloughed employees for three days this fiscal year, closing the agency to the public.

IRS Criticized

An inspector general’s report earlier this year criticized IRS spending on conferences, including a $4.1 million training event in 2010 with an artist who was a paid motivational speaker. The event also featured a video parody of the “Star Trek” television show and movies starring IRS employees.

Other IRS parody videos showed employees line dancing and acting out the NBC television show “The Apprentice.”

IRS officials and Treasury Secretary Jacob J. Lew have argued for a budget increase in fiscal 2014, citing the risk of uncollected taxes from what they call counterproductive cuts.

The IRS audited one in 97 individual tax returns in 2012, down from one in 90 in 2010. The tax agency has been auditing S corporations, partnerships and gift-tax returns more frequently in recent years.

Congress probably won’t resolve the agency’s funding until later in the year. Lawmakers in both parties are negotiating on bills that would extend current funding levels into December.

The amount of money in what the IRS calls “the queue” of accounts to be collected has increased by 46 percent over the past five years, to $63.1 billion, according to the report.

“Although many of the cases in the queue may be assigned to be worked, a significant number may only be sent an annual reminder notice in attempt to resolve the delinquency,” the report said.

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