This article first appeared in the July 24, 2015 edition of Tax Notes Today.
The Senate Appropriations Committee on July 23 approved legislation that would continue the ongoing budget cuts at the IRS and yet would seek to improve taxpayer services.
The Financial Services and General Government Appropriations 2016 Act, which passed 16 to 14, would provide the IRS with $10.48 billion for fiscal 2016, cutting its coffers by 4.3 percent from the current funding level. The reduction continues budget cuts at the beleaguered agency that have been ongoing since 2010.
The only area that would see a funding increase is taxpayer services, which would receive a 4.2 percent boost, to $2.28 billion, from the current year's amount.
Committee Chair Thad Cochran, R-Miss., said that the IRS fails in that area and that the agency should prioritize it, along with the protection of taxpayers' personal information. "Unfortunately, the IRS prioritizes the implementation of the Affordable Care Act and the individual mandate over taxpayer services," he said.
In justifying the Republican proposal, Cochran argued that the IRS has "significant flexibility" in how it allocates funds, which he said are, in part, sourced from user fees.
Opponents of the measure defended the IRS, arguing that the recommended amount is inadequate. "Whatever you feel about the IRS . . . you can't have tax compliance without the IRS," committee ranking minority member Barbara A. Mikulski, D-Md., said.
"The IRS has endured withering budget cuts that make it difficult to deliver services to taxpayers and enforce the laws," said Sen. Christopher A. Coons, D-Del. The bill would slash tax enforcement by $360 million, he said, noting concerns that the reduction would restrict the agency's efforts to combat stolen identify refund fraud.
The Appropriations Financial Services and General Government Subcommittee adopted the measure the day before the full committee markup.
The legislation, now on its way to floor consideration, shares its status with the House's financial services appropriations bill (H.R. 2995). That bill would provide the IRS with $10.1 billion, a 7.7 percent reduction from the current year, and would similarly boost taxpayer services funding.
Both the House and Senate spending measures include provisions that would restrict the IRS's ability to rehire employees and prevent it from targeting tax-exempt organizations. The House bill includes provisions that would limit the IRS's ability to administer the ACA, which is not part of the Senate bill. House Democrats have urged President Obama to veto the House bill if it reaches his desk.
The committee also adopted a manager's package, which includes an amendment that would require the IRS to provide a detailed explanation of how it closes taxpayer assistance centers (TACs).
Offered by Sen. Susan M. Collins, R-Maine, the measure would require the IRS to take the following steps before it closes a TAC: provide public notice to the area that the TAC serves, hold a public hearing on the proposed closure, and report community concerns to the Appropriations Committee.
Also, Collins's amendment would require the IRS to publish online its most recent annual review of upcoming closures.
To counter the Republican offer, Coons introduced an amendment that would provide additional IRS funding for the following accounts: $380 million to tax law enforcement, $105.45 million to business systems modernization, $817.55 million for information technology, and $161.45 million to taxpayer services. Coons's measure failed.
An amendment that would have prohibited the federal government from granting contracts to corporations that have inverted to other countries, introduced by Senate Democratic Whip Richard J. Durbin of Illinois, failed 15 to 15. "This amendment would close a loophole," Durbin said.
Splitting from her party, Collins voted for Durbin's amendment after he agreed to exempt existing contracts with corporations that have already inverted. "If that part was stricken, I would be inclined to support the senator from Illinois," she said before he agreed. "I don't think it should apply to current contractors."
In the appropriations bill, the committee also recognized the investigative efforts of the Treasury Inspector General for Tax Administration. The bill would increase the audit services funding by 5.7 percent (to $167 million) from the current year's funding level.
"The committee acknowledges the challenges TIGTA faces in adapting its oversight activities to address increasingly complex and high-risk issues associated with IRS operations, including sensitive taxpayer data, detection and investigation of fraud and electronic crime, and review of procurement activities," according to the committee report on the appropriations bill.
The report also echoes Republican lawmakers' criticism of the IRS -- particularly the ongoing controversy surrounding tax-exempt organizations.
"The IRS's use of inappropriate criteria for selecting and reviewing applications for tax-exempt status is of continuing concern to both Congress and organizations seeking tax-exempt status," the report said. "TIGTA recently reported that the IRS has taken actions to eliminate the selection of potential political cases based on names and policy positions, expedite processing of 501(c)(4) social welfare organization applications, and eliminate unnecessary information requests."