Commissioner John Koskinen recently cautioned taxpayers they should expect more reductions in IRS services because of budget cuts. Koskinen’s warning comes as the IRS prepares for year-end tax legislation as well as implementing its voluntary return preparer education program and combatting tax-related identity theft.
According to Fred Slater, CPA, partner, MS 1040 LLC, New York, employee training is one area where the IRS has reduced funding in response to budget cuts. “The training budget of IRS personnel is down by 83 percent.”
The IRS’s funding level for FY 2014 is $11.29 billion, or about $850 million below FY 2010 funding. In July, the House approved a $10.9 billion FY 2015 budget for the IRS, reflecting a $341 million drop from FY 2014 funding. The Senate is expected to maintain funding at FY 2014 levels, possibly with a slight increase. Additionally, the Budget Control Act of 2011 imposed sequestration (across-the-board spending cuts) on many federal agencies, including the IRS.
The IRS will “play the hand we are dealt” when it comes to funding, Koskinen said, but he warned that the agency cannot do more with less. “You cannot continue to reduce our resources and ask us to do more things. We are no longer going to pretend that cutting funding makes no difference,” Koskinen said.
Service and enforcement
Reduced funding has had a direct impact on customer service, Koskinen said. The IRS cut 5,200 call center employees because of lack of funding. Wait times to speak with the IRS will increase, he predicted. Overall, the agency’s total employment is down approximately 10,000 full-time employees compared to 2010.
The IRS’s level of customer service for the 2014 filing season was around 70 percent, meaning that about 70 percent of taxpayers who called this filing season got through to the IRS. This could drop into the 50s, Koskinen said.
Funding cuts have also impacted enforcement activities. The IRS will perform 100,000 fewer individual audits. The government could lose some $3 billion in revenue as a result, Koskinen cautioned.
Voluntary compliance has been the keystone of the federal tax system. “If voluntary compliance with the tax code drops by one percent, it costs the U.S. government $30 billion per year,” Koskinen said.
Legislation to renew many of the tax extenders, including the state and local sales tax deduction, higher education tuition deduction and research tax credit, has stalled in the Senate and has moved piecemeal in the House. An extenders package is not likely to come up for a vote in Congress until after the November elections, Koskinen predicted. “Congress needs to understand that the later these are passed and the more complicated they are, the more challenging it is for taxpayers to file accurate returns on time.”
The IRS is challenged to quickly reprogram its processing systems for late legislation. In past years with late legislation, the IRS delayed the start of the filing season. The IRS could do the same with the start of the 2015 filing season, Koskinen said.
The IRS has launched a new education program for return preparers, the Annual Filing Season Program (AFSP). Return preparers who elect to participate in the AFSP and receive a Record of Completion from the IRS will be included in a database on the agency’s website. “It is important to keep the momentum going for the education of tax preparers but (this) is only an interim step,” Koskinen said.
The IRS put new filters in place and took other measures to curb tax-related identity theft during the 2014 filing season. The agency is also working with software developers, financial institutions and the prepaid debit card industry to combat identity theft. “We rejected 5.7 million suspicious returns last year that may have been tied to identity theft,” Koskinen said.