This article originally appeared in the September 18, 2013 edition of Tax Notes Today.
The IRS in fiscal 2012 collected less in enforcement revenue for a second straight year, bringing in just $50.2 billion compared with $55.2 billion in fiscal 2011 and $57.6 billion in fiscal 2010 -- a 13 percent drop in the same two years that the agency also lost 14 percent of its enforcement personnel.
The figures come from a Treasury Inspector General for Tax Administration report released September 17 that noted an increased IRS workload because of implementation of the Affordable Care Act and said recent budget cuts and sequestration have reduced the total IRS workforce by 8,000 since fiscal 2010 (to 97,942 at the end of fiscal 2012).
According to TIGTA, the IRS in fiscal 2010 and 2011 hired the fewest revenue agents and tax compliance officers in more than 10 years -- just 200, compared with almost 3,300 in fiscal 2009 and 2010. "The reduced hiring has contributed to a 13 percent reduction in the overall number of Examination function personnel who conduct examinations of tax returns," the report says.
"The IRS is facing many new challenges while operating with fewer resources and employees," Inspector General J. Russell George said in a statement. "Several indicators showed the effect of this, including a decrease in enforcement revenue and a continued increase in accounts receivable."
TIGTA also noted that while IRS enforcement revenue and enforcement employment declined, the agency's tax gap estimate widened. Just a day earlier, TIGTA released a report recommending that the IRS produce more timely and accurate tax gap estimates. The IRS in January 2012 estimated the tax gap at $450 billion a year for tax year 2006, up 30 percent from the estimate of $345 billion for 2001.
"Over the past two years, the IRS budget has been cut by almost $1 billion," National Treasury Employees Union President Colleen Kelley said in a September 17 statement about TIGTA's tax gap report. She noted that funding restrictions have forced the Service to operate under an exceptions-only hiring freeze, even after reducing the IRS workforce by more than 5,000 enforcement employees since the end of fiscal 2010.
"This is the reverse of what we should be doing," Kelly said. "The IRS cannot be expected to meaningfully cut into the tax gap with insufficient resources already putting a strain on its ability to perform its core mission."
Citizens for Tax Justice Legislative Director Steve Wamhoff agreed. "File this one under Completely Predictable," he said in an e-mail. "Investing in the IRS's activities has a rate of return like no other public investment, but Congress has been foolishly whittling away its budget for several years. Fewer people collecting taxes due means fewer taxes being collected. This problem will only become worse as a result of the sequestration in effect this year, which cuts the IRS budget by $600 million for 2013."
Edward S. Karl, vice president of tax at the American Institute of Certified Public Accountants, told Tax Analysts that "it's not surprising" to see that budget cuts in a time of increasing workload would result in service or enforcement shortfalls as the IRS reallocates scarce resources. "We have for years urged full funding of the IRS budget," Karl said.
While enforcement collections have decreased, TIGTA found that gross collections increased 8 percent from fiscal 2010 to 2012, to $2.52 trillion. Still, gross collections remained 8 percent lower than their 10-year high in fiscal 2008.
The number of tax returns filed also increased 2.1 million, from 184.6 million in calendar year 2011 to 186.7 million in calendar 2012. Since calendar 2008, the number of returns filed has grown 2.1 percent, TIGTA said.
TIGTA also reported that the IRS's use of liens, levies, and seizures dropped more than 32 percent from fiscal 2011 to 2012, the largest decline in more than a decade, thanks in part to one of the Service's "fresh start" initiatives. Specifically, the report says, the IRS in fiscal 2011 increased the threshold for lien filing determinations from $5,000 to $10,000 to help small businesses and individuals meet their tax obligations without adding undue burden.