I have paid keen attention to IRS spending over the years because the manner in which the IRS spends is a look into the future. We can glean with reasonable accuracy where the IRS intends to devote its time and energy.
The Government Accountability Office (GAO) recently issued its report discussing the IRS’s 2012 proposed budget. The report breaks down the spending proposed by the IRS and addresses the so-called “revenue increasing recommendations” that were presented in previous GAO reports.
20% Rise Since 2008
President Obama requested $13.3 billion to fund the IRS’s 2012 operations. This figure constitutes a $1.14 billion, or 9.4 percent increase over 2010 and a whopping 20 percent increase over the 2008 budget. (GAO-11-547, IRS Budget 2012, p. 4). The three key areas of IRS spending are:
• $2.3 billion for taxpayer services, assistance, etc.,
• $4.6 billion for operations support, and
• $6 billion for enforcement of the tax laws.
The justification the IRS uses to increase its budget is because of its “unique function as the revenue center of the government.” The IRS argues that its “budget increase actually reduces the deficit through increased tax enforcement revenues” (IRS FY 2012 Budget Proposal Summary, FS-2011-09 (Feb. 2011) (hereinafter “IRS 2012 Budget Summary”).
It seems the core of this budget is about increasing enforcement. In fact, the GAO points out that most of the 2012 increase is “for the Enforcement and Operations Support appropriations,” through the use of “17 new enforcement, taxpayer service, and other initiatives with a total cost of approximately $839 million.”
The key enforcement initiatives mentioned very generally in this budget are:
• increased international activities;
• increased collection functions on current delinquent accounts through more lien and levy action;
• implement the new information reporting rules for credit card companies and securities companies; and
• implement the new 1099 reporting requirements. (Note, however, that the 1099 reporting requirements imposed under the Patient Protection and Affordable Care Act were repealed.)
The IRS believes these new initiatives will have an average return on investment of 6.4 to 1—meaning for every dollar the IRS spends on these initiatives, the agency will collect $6.40 of additional taxes. With this claim of return on investment, it’s no wonder Congress is willing to continue funding the IRS’s every wish.
These new initiatives are in addition to the enforcement initiatives that are already a priority for the IRS. These include:
• employment tax audits, which focus on independent contractors, officer compensation, and employment tax compliance;
• non-filer programs, including increased substitute for return activity; and
• audits of small businesses, in particular flow-through entities such as subchapter S corporations and partnerships.
No wonder the IRS is asking for more staff. The agency needs manpower to carry out the increased attacks on individuals and small businesses. The IRS’s 2012 budget proposes a 6 percent increase in full-time staff over 2010 and an 11 percent increase over its 2008 staffing levels.
If the IRS has its way, the agency will have more than 100,000 full-time employees (FTEs) in 2012, compared to 91,000 in 2008 and 95,000 in 2010. As you can see, the agency is growing, both in terms of money and manpower.
It is interesting to note that while the number of enforcement personnel is rising substantially, and has been for years, the number of employees dedicated to taxpayer assistance is at best flat or has dropped slightly. To me, this is a good measure of the IRS’s commitment to “helping” people. The IRS knows very well that a confusing tax law adds to the number of mistakes people make.
3,250 Tax Changes
In fact, we know that most of what the IRS calls non-compliance is really not non-compliance at all. Most of the so-called non-compliance is really lack of understanding of what is required. Never has this been more true than today. There have been 3,250 tax law changes in the code since 2001. (See “Ten Principles of Federal Tax Policy,” Pilla, The Heartland Institute, 2010.)
This kind of never-ending flux in the tax code breeds misunderstanding and errors. The IRS should be spending more time, energy, and resources helping people before mistakes are made rather than focusing its attention solely on dropping the hammer after mistakes are made. Moreover, this lack of attention to taxpayer service is at odds with the stated philosophy of Commissioner Doug Shulman in his first IRS Strategic Plan, issued in 2009.
In that plan, Shulman stated the IRS’s “first goal is to improve service to taxpayers to make voluntary compliance easier.” Shulman noted, “We need to excel at both service and enforcement to meet our mission: it isn’t an either-or proposition.”
Contrary to Shulman’s statements, it appears the IRS has indeed made a choice, and that choice appears to be in favor of enforcement. I’ve always said this is the easy way out for the IRS. It is much easier for the IRS to implore Congress to fund enforcement than it is to fund education. The results (or at least apparent results) of enforcement are immediate. But how do you measure the impact of taxpayer education initiatives?
Daniel J. Pilla ([email protected]) runs TaxHelpOnline.com and is the author of 11 books on taxpayers’ rights and IRS abuse prevention. Condensed from an article in the Pilla Talks Taxes newsletter and used with permission.