Dramatic Drop In IRS Enforcement Actions

With the filing season rapidly approaching it is worth reviewing the impact of the six year sustained attack on the IRS budget by Congress. Over the past six years Congress has dramatically reduced the IRS budget. The IRS budget has been reduced by about $12 billion to about $10 billion dollars per year. In 2011 the IRS budget was frozen and its workforce shrank. In 2012, 2013, 2014 2015 and 2016 Congress shortsightedly cut the IRS budget and its workforce has shrunk dramatically.

Because of Congressional cuts in IRS budgets its workforce continues to shrink. From a high of about 92,000 employees in 2010, the IRS now has fewer than 74,000 employees. The cuts have resulted in reduced service to compliant taxpayers and their representatives. The cuts have also encouraged and empowered non-compliant taxpayers. There have been dramatic drops in enforcement activity by the IRS. Examinations are down over 25%. Levies against delinquent taxpayers are down over 50% and there are 40% fewer criminal investigations. See Charts A and B

Chart A - Number of Employees at Close of Fiscal Year

 Chart B - Enforcement Employees

Reduced Service

Without adequate staffing many services once available to taxpayers and their representatives have been reduced or eliminated. In 2015 only 37.3% of calls to the IRS help line were answered. That number jumped to 72.6%in 2016 because of a special allocation by Congress in the 2016 budget.1 Even with increased response in the filing season, IRS ceased answering tax questions after April 17 on its help line. As a result of budget constraints IRS no longer provides advice to walk-ins. Taxpayers must schedule an appointment in advance to speak personally with an IRS representative. The IRS has also eliminated assisting taxpayers in the preparation of their returns. In an effort to meet budget constraints the IRS has also closed many of its walk-in sites forcing taxpayers to travel long distances to receive face-to-face advice. The taxpayer Advocate has noted that these service cuts disproportionately harm the poor and seniors.2 Practitioners calling the Practitioner Priority Case 800 number face extended wait times and on many occasions are disconnected automatically by the system as a result of an IRS policy known as “courtesy disconnects.”

Taxpayers and their representatives corresponding with the IRS also have found the Service to be unresponsive. Many times they receive form letters stating the IRS has not had time to review the response and that response will be delayed 60 days. That response is followed by another letter stating that the Service needs another 60 days. Those trying to be responsive to the IRS and resolve problems find that it is almost impossible to effectively reach a satisfactory result.

Another problem harming compliant Americans is the IRS Revenue Protection System. In an effort to prevent identity theft additional computer screens have been placed in the systems. That system erroneously flagged over 700,000 refunds during the 2016 filing season. Those whose refunds are frozen may not even receive a notice from the IRS. When one finally calls to inquire about the frozen refund she is referred to another 800 number, 800-830-5084. The victim who calls the hotline will be subjected to interminable wait times only to be followed by extensive demands for information from her 2014 and 2015 tax returns. Clients have related that they were treated like a criminal simply because they merely sought to receive their refund. The Taxpayer Advocate listed the Revenue Protection system #4 on her list of problems at the IRS in her 2015 report to Congress.

Enforcement

Non-compliant taxpayers have reasons to rejoice as the IRS now lacks the resources to pursue them. About 82% of Americans are fully compliant 3 yet the IRS only has resources to pursue a diminishing part of that group. The IRS only managed to audit .8% of individual returns in 2015 and that number is down from 1.10% in 2010. In 2010 the Service collected $16.9 billion from audits.4 In 2015 that number had dropped to $7.32 billion. The six years of budget cuts have taken about $1 billion dollars from the total IRS enforcement budget and as direct result the American taxpayers have suffered an over $9 billion loss in additional revenue from those filing inaccurate returns. The reduction in enforcement is also dramatic for those who owe taxes. Fewer and fewer delinquent taxpayers have levies issued against their assets and liens filed against them. See Chart C

Chart C - IRS Action

A 2015 Government Accountability Office report found that the IRS’ uncollected tax debts rose 23% since 2009 to $380 billion while the agency’s collection staff fell 23% during the same period after years of budget cuts. Therefore the budget cuts have also reduced revenue from taxpayers who choose not to pay their taxes by billions.

The sad state of the IRS’ ability to pursue enforcement is also illustrated by statistics of criminal investigations. Each year the IRS is pursuing fewer criminal investigations. That effect of criminal enforcement on compliance cannot be quantified but it is undeniable that one reason Americans are compliant taxpayers is because they fear discovery of their bad tax conduct. See Chart D

Chart D - IRS Enforcement

Conclusion

American taxpayers have historically been among the most compliant taxpayers in the world but our Congress has chosen to empowered tax dodgers and unduly burden compliant taxpayers and their tax advisors though a series of ill-advised budget cuts. Each of those cuts created false economies because of the proven ability of the IRS to efficiently generate revenue from noncompliant taxpayers when it is properly funded.

1 2016 Taxpayer Advocate report to Congress
2 Taxpayer Advocate’s Report to Congress January, 2016
3 IRS National Research Program Report for 2008-2010 returns
4 2015 IRS Data Book