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January 16, 2014
Omnibus Appropriations Bill Would Further Gut IRS Funding
by Eric Kroh

Full Text Published by Tax Analysts®

The IRS, already hampered by a tight budget, would be further constricted under a fiscal 2014 omnibus appropriations bill released late January 13 that would make more cuts to the agency's funding, even as IRS officials have warned Congress about the risks of underfunding.

The Consolidated Appropriations Act, 2014, which was negotiated between the House and Senate Appropriations committees, would provide $11.3 billion in funding for the agency, $526 million below fiscal 2013 levels, according to a House Appropriations Committee summary. The bill also includes new rules in light of allegations that the IRS mishandled conservative organizations' exemption applications and engaged in excessive spending for training videos and conferences.

Of the appropriated funds, $92 million would be set aside "solely to improve the delivery of services to taxpayers, to improve the identification and prevention of refund fraud and identity theft, and to address international and offshore compliance issues," according to the bill.

The legislation would require the IRS to train employees in taxpayer rights, ethics, and impartial application of the tax law, in response to outrage over the agency's use of "be on the lookout" lists to flag for additional screening the exemption applications of conservative social welfare groups and some liberal groups. The bill further stipulates that funds could not be used to "target citizens of the United States for exercising any right guaranteed under the First Amendment to the Constitution of the United States" or to "target groups for regulatory scrutiny based on their ideological beliefs."

The bill also would require an agencywide editorial board to approve the use of appropriated funds in the production of IRS videos. According to a May 2013 Treasury Inspector General for Tax Administration report, the IRS in February 2013 established a review board to oversee spending on video productions, after it was revealed that the IRS had spent tens of thousands of dollars to produce themed training videos featuring IRS employees depicting characters from Star TrekGilligan's Island, and The Apprentice, and learning how to line dance.

The appropriations bill would allocate funds for increased staffing for the IRS's toll-free line for taxpayer assistance. Phone service levels on the line fell to 60.5 percent in fiscal 2013, the lowest level in five years.

The bill does not provide funding for the Interior Department's payments in lieu of taxes program. According to the Interior Department, the program provides local governments with funds to offset the loss of a tax base when there is federal land within their jurisdictions. The House Appropriations Committee said in a summary of the bill's provisions funding Interior that it expects the issue to be "addressed expeditiously" by the committees with jurisdiction over the program.

The Consolidated Appropriations Act would fund the entire government through fiscal 2014 at $1.01 trillion, the level agreed to in the Bipartisan Budget Act of 2013. The bill also would provide $10 million for the Joint Committee on Taxation, roughly on par with fiscal 2013 levels.

The House on January 14 approved a short-term measure to fund the government through January 18, and the Senate was expected to pass it the next day.

'Woefully Inadequate'

National Treasury Employees Union President Colleen M. Kelley decried the appropriations bill as "woefully inadequate," saying in a statement 
released January 14 that it "sets the stage for another difficult year for the nation's revenue-producing agency."

"Continued underfunding of the IRS means refunds will be delayed, taxpayers will sit on hold and tax help will be available to fewer and fewer Americans," Kelley added.

Agency officials also have warned Congress about the risks of further cuts to the IRS budget. National Taxpayer Advocate Nina Olson said in her annual report to Congress, released January 9, that an underfunded IRS budget was one of the largest problems facing the agency and that the IRS "desperately needs more funding to serve taxpayers and increase voluntary compliance."

In his first press conference as agency head January 6, IRS Commissioner John Koskinen said that trade-offs in enforcement efforts and taxpayer service would have to be made if the IRS continues to be funded on a relatively meager budget.

The proposed IRS budget will continue pressure on travel and conference spending that has already seen sharp cuts. Appearing at a Senate Homeland Security and Governmental Affairs Committee hearing January 14, Treasury Inspector General J. Russell George testified that the IRS has cut conference spending from about $38 million in fiscal 2010 to $5 million in fiscal 2012.

The IRS has agreed to formalize guidance for a future update of the Internal Revenue Manual, including enhanced controls and tracking of conference spending, along with other reforms, George said.

But when asked by committee member Ron Johnson, R-Wis., if the IRS's conference and travel spending cuts had gone too far, affecting the efficiency of IRS workers, George replied that it was too soon to tell.

Meg Shreve and William Hoffman contributed to this article.

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