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Monday, March 23, 2015

IRS Asking For A $2 Billion Budget Increase

This is a review of J. Russell George, Treasury Inspector General for Tax Administration's testimony to the Senate Appropriations Subcommittee on Financial Services And General Government.

According to the testimony of J. Russell George the TIGTA is "statutorily mandated to provide independent audit and investigative services necessary to improve the economy, efficiency, and effectiveness of the IRS." He goes on to say that it is "designed to identify high risk systemic inefficiencies in IRS operations and to investigate exploited weaknesses in tax administration." Published on March 3, the document represents a review of the Administration's Fiscal Year 2016 Funding Request for the Department of the Treasury and the IRS.

The Administration is asking for $12.9 billion, an increase of $2 billion, or approximately 18 percent more than FY 2015. This is after a $346 million reduction from 2014 to 2015. The request includes a net staffing increase of 9,245 Full-Time Equivalents (FTE) for a total of approximately 90,524 appropriated FTEs. The largest increases by department or functional area were in Business Systems Modernization and Operations Support.

Clearly, TIGTA George believes the IRS has done a good job of maintaining operations considering the budgetary cuts from mandated sequestration, reduced staffing and the loss of supplementary funding, but he also believes there's over $5 billion on the table in cost savings that could be made by 1) closing loopholes on known tax fraud scams, 2) requiring tele-work employees to share workstations, 3) allowing tax payers to file amended returns electronically, 4) being able to measure revenue coming in from enforcement activity, and 5) eliminating erroneous carry-forwards claimed by corporations.

The TIGTA believes many of the IRS' current shortfalls in service, technology or enforcement are due to budget cuts, however, he also believes there are many opportunities for the organization to save money. Namely, a $111 million cost savings over a 5 year period for requiring tele-work and part-time employees to share workstations. The report estimates that 10,244 workstations could potentially be eliminated. The report also faults the IRS with mismanagement of software licensing and estimates the issue could cost the IRS $81 million and $114 million in licenses and annual license maintenance that could be eliminated if managed properly. The IRS agreed with the assessment and has already taken steps toward implementation.

In addition to cost savings the TIGTA also found $439 million in potentially erroneous tax refunds claimed on 187,421 amended returns in FY 2012. Amended tax returns can't be filed electronically so there's a higher incidence of error. A statistical sample of 259 amended tax returns by the TIGTA identified 17 percent with questionable claims.  According to the TIGTA, allowing taxpayers to file amended returns electronically could "prevent the issuance of more than $2.1 billion in erroneous refunds associated with amended tax returns". The IRS has also agreed to expand filing for amended returns.

Finally, the TIGTA accused the IRS of failing to create a process to identify corporations claiming erroneous carry-forward credits and estimates the errors total more than $2.7 billion. Even more startling is that the IRS does not plan to implement this recommendation due to lack of IT resources and more pressing priorities.

So, net/net the IRS is asking for a $2 billion increase, when the TIGTA has pointed out several ways for the agency to pull in over $5 billion. To be fair, some of these suggestions do cost money. Let's hope the budget approval is conditional on implementing at least some of these suggestions.