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Impact of Budget Cuts on IRS

| Nov 13, 2015 | Firm News

The IRS budget has been cut severely over the past few years. The budget has been reduced every year since 2010. At the same time the IRS is experiencing budget cuts, the IRS is being tasked with an increased workload. Here some observations on a few ways the IRS budget is impacting the way the IRS is currently carrying out its mission:

1. Backlogs in most functions, collections, exams, appeals, etc. resulting in significant delays responding to taxpayers.

2. Long telephone wait times for taxpayers trying to reach the IRS for assistance. Many taxpayers never get through and hang-up in frustration after holding for an hour or more. I hear this complaint frequently. According to the National Taxpayer Advocate, the IRS is expected to answer less than half of the telephone calls it receives in 2015.

3. IRS Counsel and Appeals are not timely engaging with taxpayers to address matters docketed in the U.S. Tax Court.

4. Audits have dropped to the lowest level in 11 years. I like to think this is more a function of better focus by the IRS – like increased focus on specific enforcement areas. Offshore compliance is an example. However, it is also a product of understaffing and lack of resources.

5. Prolonged hiring freezes are causing serious understaffing issues.

6. Compounding the understaffing problem is the slashed training budget is resulting in undertrained employees. Not only is the IRS understaffed, it is undertrained. This is scary for taxpayers, because even when they are lucky enough to get someone at the IRS to talk to, the IRS employee sometimes has no idea what they are doing. As a practitioner, I can often educate the employee to get to the right result. Unfortunately, many taxpayers won’t know when they are being taken down the wrong path.

7. Gross inefficiency due to lack of funds needed for technology improvements.

8. Inadequate security of taxpayer data due to lack of funds for needed technology upgrades.

9. Weakened and delayed enforcement on multiple levels. The government speaks about closing the tax gap, but the IRS can’t react fast enough to address tax delinquencies. Taxpayers for many reasons have tax compliance issues that go unchecked for multiple years without even getting a letter from the IRS. When the IRS finally catches up, the problem is often bigger, more complex, and harder to get under control than it ever should have been. It’s unfortunate because the IRS can do better even with the resources they have.

10. Taxpayers are becoming aware of the IRS’s lack of resources and the pressure on taxpayers to fully and voluntarily comply with tax laws is eroding slowly.

There are many factors contributing to the mounting problems at the IRS, and it could be argued the IRS is its own worst enemy by failing to utilize the resources it does have in an efficient and productive way. Add to that the multiple PR issues it has faced over the past couple of years and it becomes easy to see why the IRS becomes an easy target. Regardless, the budget is a significant issue impairing the IRS’ ability to do the best possible job for taxpayers. Not many people complain about cutting the IRS budget (some are happy about it), until they are faced with having to deal with the IRS and experience first-hand the difficulties of dealing with an understaffed, undertrained organization tasked with administering a very complex tax regime.