Report: Lack of enforcement contributes to $381 billion in uncollected taxes on average per year. Image: Pamela Au/Shutterstock.com
By: FEDweek StaffBoosting funding for IRS enforcement activities—most of which would go toward hiring more employees—would yield increased tax collections far above the cost, the CBO has said.
In the latest of many reports from various sources on the impacts of restrictions on the IRS budget, the CBO said that in inflation-adjusted terms the agency’s funding fell about 20 percent between 2010 and 2018. “Because labor costs account for about 70 percent of the IRS’s budget, measures to reduce its workforce were instituted, including a hiring freeze,” it said.
Those measures resulted in a 22 percent decline in the number of employees at the agency and a 30 percent decline in the number of employees working in enforcement roles. “The number of revenue agents and revenue officers, highly specialized enforcement employees who handle the most complex examinations and collections cases, fell by 35 percent and 48 percent, respectively,” it said.
The examination rate for individual income tax returns dropped by about 46 percent, and the rate for corporate income tax returns by about 37 percent, it said, and the amount of additional taxes and penalties the IRS recommended after examinations of corporate and individual income tax returns—before taxpayers appeal or challenge those recommendations—also fell.
It said that lack of enforcement contributes to the annual “tax gap”—money owed but not paid in a given year—that averages $441 billion per year—of which on average $60 billion per year is eventually collected, leaving a net under-collection of $381 billion on average.
“CBO estimates that increasing the IRS’s funding for examinations and collections by $20 billion over 10 years would boost revenues by $61 billion, resulting in a $41 billion decrease in the cumulative deficit; increasing such funding by $40 billion over 10 years would boost revenues by $103 billion, resulting in a $63 billion decrease in the deficit,” it said.
A spending bill now advancing in the House would increase the agency’s enforcement budget. However, CBO said that even if additional funding is approved, “It is uncertain how long it would take for new hires to become productive. The IRS would not be able to bring new hires up to speed instantly, nor is it likely that the agency could hire them quickly.”
It said that the time to hire enforcement staff can be up to a year and once hired, they need to “develop specialized expertise to become effective, and the IRS estimates that it can take four to five years to train new hires to become experienced senior-level revenue officers,” it said.
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