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June 3, 2013
IRS Oversight Board Says Budget Cuts Will Harm Agency Performance Significantly in 2014
by Eric Kroh

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by Eric Kroh

Summary by Tax Analysts®
If allowed to continue, the IRS budget cuts that are already straining the agency will lead to more significant reductions in revenue and performance in 2014, the IRS Oversight Board said in its report on the IRS's fiscal 2014 budget request.

If allowed to continue, the IRS budget cuts that are already straining the agency will lead to more significant reductions in revenue and performance in 2014, the IRS Oversight Board said in its report on the IRS's fiscal 2014 budget request.

Budget reductions of more than $1 billion since fiscal 2010 because of the Budget Control Act of 2011 and the sequestration have already led to declines in IRS performance measures such as the level of phone service, according to the May report. Increased agency responsibilities in the coming years, including administering the healthcare reform law, the Foreign Account Tax Compliance Act, and the merchant card and stock basis initiatives, as well as battling the increase in tax-related identity theft, will place a further strain on already diminished resources, the board said.

"The Board believes that the current budgetary path is no longer sustainable," Oversight Board Chair Paul Cherecwich Jr. said in a statement. "We have already seen erosion in level of service on IRS' toll-free telephone lines. Moreover, the IRS is predicting that it will collect less enforcement revenue this year as compared to last. This deterioration in across-the-board performance will become more pronounced in 2014. This is [not the] time to make short-sighted budget cuts."

The IRS has already had to adjust its fiscal 2013 operating plan because of the budget sequestration, the Oversight Board said. To apply agency furloughs evenly across the agency, it had to transfer $75 million from funds appropriated for enforcement to taxpayer services and operations support. Enforcement revenue declined to $50.2 billion in fiscal 2012 from $57.6 billion in fiscal 2010, according to the report.

The board said that President Obama's requested IRS fiscal 2014 budget of $12.9 billion, an increase of 8.8 percent over the fiscal 2012 enacted level, is reasonable, although it is below the $13.1 billion originally requested by the board.

The IRS level of phone service, a key indicator of the agency's performance, has declined from a high of 87 percent in fiscal 2004 to 70 percent in fiscal 2013. That means that the IRS was able to answer only seven out of 10 taxpayer assistance calls after an average wait time of 13 minutes. The agency plans a 79 percent level of phone service in fiscal 2014, but that will be attainable only if Congress enacts a $2.41 billion budget for taxpayer services, as recommended by the president. "Otherwise, providing an acceptable [level of service] will continue to be a challenge for the IRS," the report says.

The board said it strongly supports the permanent extension of the streamlined critical pay program originally enacted in 1998. The program authorizes the IRS to pay some employees above the levels normally allowed for government workers to make those jobs more competitive with those in the private sector.

"The Board has found the provision to be a valuable and effective tool in bringing specialized expertise to IRS initiatives," the report says. "It has proven to be successful in not only information technology, but also in sophisticated and complex areas of international taxation, such as transfer pricing."

Obama's IRS budget request supported extending streamlined critical pay through 2018.


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