A news release following the last 2014 meeting of the IRS Oversight Board highlights concerns over IRS’s anticipated fiscal year (FY) 2015 budget, which has been further slashed from FY 2014 levels. This reduction comes after warnings from IRS Commissioner Koskinen and National Taxpayer Advocate Nina Olson about the agency’s increased responsibilities and the negative impact of a reduced budget on, among other things, taxpayer service and overall revenue collection. Click here to view a copy of the IRS Oversight Board’s news release titled “Projected Flat IRS Budget for FY2015 Raises New Concerns.”
IRS’s anticipated budget. The current spending bill allocates $10.9 billion to IRS—a 3.1% reduction from the 2014 budget amount of $11.3 billion. In his 2015 budget proposal, President Obama would have increased base IRS funding to $12 billion. (A “program integrity initiative” would have increased the overall funding to $12.5 billion.) The budget proposal noted that IRS investment pays for itself “several times over” given the revenue return from strong tax enforcement.
Challenges facing IRS. The release highlights the following challenges facing IRS, as well as measures that IRS is taking to address them or minimize their impact.
- Unfunded mandates. According to the release, IRS is charged in FY 2015 with implementing a number of unfunded mandates, including the Affordable Care Act (ACA) and the Foreign Account Tax Compliance Act (FATCA).
- Increased number of taxpayers. The number of individual and business taxpayers has increased since FY 2013 by 4.2 million. One “of the more innovative ideas to improve customer service” noted in the release is to make self-service online applications the easiest option for taxpayers. These so-called “digital” interactions cost only 17¢, as opposed to $33 per assisted call.
- Growing operational costs. The costs of current operations have grown by 3.1% since FY 2013.
- Filing season uncertainties. The 2015 filing season will also present a number of challenges, including lingering uncertainty surrounding tax extender legislation and an anticipated increase in the number of calls related to the ACA. To deal with the increased number of ACA inquiries, IRS is conducting an “aggressive ACA outreach and education campaign” to temper the fact that many telephone inquiries will likely go unanswered.
- Training issues. Budget cuts have also caused IRS training to take a “huge hit,” although the release notes that IRS told the Board that “it anticipates years of steady declines are beginning to level off.” To deal with this issue, the release notes that it is increasingly relying on virtually training. The Board noted that, while this is cost effective, it “cannot fully take the place of in-person training, especially for new employees.”
Current situation “not sustainable.” Board Chairman Paul Cherewich Jr., who is retiring, stated that IRS’s budget and taxpayer needs “are moving in opposite directions,” noting that “[t]his trend is not sustainable in either the short- or long-term.” He observed that the effects of the reduced budget include declines in customer service as well as enforcement. He stated that, with an additional 951 full-time equivalent employees, IRS could increase the level of service on its toll-free lines, serve an additional 4.4 million taxpayers, and significantly cut wait times. According to the release, additional IRS resources would also generate billions of dollars in additional revenue—which, in turn, would help reduce the government’s overall budget deficit.
Prior warnings. The National Taxpayer Advocate’s (NTA’s) annual 2013 report, issued earlier this year, identified the lack of IRS funding as a top problem for taxpayers—in terms of its impact on taxpayer service as well as its impact on voluntary compliance and revenue collection.
According to the NTA’s report, IRS’s workload has increased over the past decade, and since FY 2010, IRS funding and staffing have been cut by 8%. The report stated that, with regard to across-the-board reductions to federal discretionary spending, “the logic behind budget cuts simply does not apply to the funding of IRS.” IRS collected $255 for each $1 it received in appropriated funds in FY 2013, which NTA Nina Olson said isn’t properly taken into account under the federal budget rules.
IRS Commissioner John Koskinen has also highlighted challenges facing IRS due to severe budget constraints. He spoke in late October of the fact that the agency has made dramatic reductions in key personnel, which has forced it reduce the number of audits and collection activities, leaving billions of dollars in enforcement revenue uncollected. He also mentioned the fact that the 2015 filing season will be the first for which the Form 1040 will reflect two major ACA provisions, the premium tax credit and individual shared responsibility payment. He also stated at that time that the start of the filing season might have to be delayed due to late tax extender legislation (which is only now making its way through Congress).