2005 Budget Calls For Higher Funding Of IRS Enforcement Budget

by Leroy Baker, Tax-News.com, New York

04 February 2004

As part of the 2005 budget proposals, the Bush administration has asked Congress to put aside an additional $500 million for the Internal Revenue Service Budget, around $300 million of which is to be directed towards compliance.

This will mean that in total, the government will ask the holders of the Congressional purse strings to make available $10.67 billion for next year’s IRS budget, up from the $10.18 billion approved for 2004. Of this, a significant chunk is to be allocated to compliance and enforcement.

Much of this extra cash will enable the IRS to carry out its planned increase in audits of both small and large businesses, as well as high-net-worth individuals. In addition, the Revenue has plans to carry out 229 investigations into suspected cases of “significant corporate fraud” in the coming tax years through 2007.

The IRS also hopes to hire and train an extra 2,000 staff to work in its document matching program, which the agency estimates will contribute some $2.8 billion in enforcement revenues in the next few years. This will add to the $3 billion in extra revenues expected from an expansion in the audit coverage rate for large and mid-sized business from 5.1% to 9.6% over the coming three years.

In addition, the IRS plans to examine some 30,000 extra investor returns from small businesses and self-employed investors, targeting in particular high income investors. Along with the closure of 50,000 delinquent taxpayer accounts, this is expected to generate some $385 million in extra revenues.

Overall, the Treasury’s budget request for 2005 is around 4.5% higher than in 2004 at $11.68 billion, the lion’s share of which will be allocated to funding the IRS.

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