IRS Proposes Budget Based On Achieving Tax Compliance

by Mike Godfrey, Tax-News.com, Washington

16 February 2012

The requested budget for the Internal Revenue Service (IRS) in the fiscal year beginning October 1, 2012, is around USD12.8bn, and is designed to provide the resources necessary to administer and enforce, and implement recent changes to, the United States tax code, and to serve the American taxpayer in a timely manner.

The budget represents a USD944.5m (or 8%) increase over the enacted level for the previous 2011-12 fiscal year, but only a USD639.3m increase from the level enacted for 2010-2011. A significant portion of the increase from 2011-2012 therefore represents the government’s request to restore lost revenue resulting from reductions in IRS funding made over the past two years.

In the 2010-11 fiscal year, the IRS collected USD2,415bn in taxes, representing 92% of federal government receipts, while it processed more than 144.7m individual returns and issued almost 110m refunds totalling USD345bn.

It is pointed out that the IRS consistently achieves a high return on investment for its activities while running a fiscally disciplined operation. In 2012-13, the IRS expects to identify nearly USD71m in cost savings from increased use of electronic return filing, reductions in non-case related travel and streamlining operations.

The IRS’s 2012-13 budget includes USD403m in new IRS enforcement activities, which are expected to raise USD1.48bn in revenue annually, once new hires are fully trained and develop broader experience by 2014-15. The return on investment is even greater when factoring in the deterrence value of these investments and other IRS enforcement programmes.

The enforcement budget also includes USD200m in additional examination and collection programmes that will generate more than USD1.1bn in additional annual enforcement revenue by 2014-15. The IRS has said that its investments in enforcement programmes are especially important to further its mission of improving tax compliance.

The specific areas where the proposed 2012-13 funding will enable the IRS to continue to strengthen enforcement efforts and reduce the tax gap include an improvement to international compliance by individual and business taxpayers. During the year, the IRS will continue to address offshore tax evasion by individuals through such efforts as increased examinations and the special offshore voluntary disclosure programme.

Revenue will also be expanded through efforts to identify fraud and prevent the issuance of questionable refunds, including tax-related identity theft. The increase in funding will also help support efforts to reduce erroneous refund payments through claims for the Earned Income Tax Credit (EITC) by ineligible taxpayers.

In addition, additional funds will be allocated to implement tax law changes that make available the use of new information reporting requirements to help address the underreporting tax gap; and to enhance IRS oversight of complex financial situations, including transfer pricing and uncertain tax positions.

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