The IRS Responds on Its Reduced 2012 Budget

July 22, 2011 by  Filed under: Taxes 

The 2012 tax year is projected to be a tough year for the IRS. In June 2011, the House Appropriations Committee’s subcommittee on financial services decided on a budget cut on the requested funding for the tax collection body. The approved budget for the IRS was not only less than what they had requested for (through the president’s budget), but was also less than what was allocated previously in the 2011 tax year. The actual amount allowed was about 0.2% lower than in 2011 and the report states that the difference is even higher if you consider inflation and other cost factors. The reduction in the budget for the IRS came as a cost cutting measure for Federal spending in the wake of a large government deficit that is currently unsettling the United States. However, the reduction of the budget for the authority that seeks to collect funds for the government came amidst mix reactions from various stakeholders. Some politicians saw the move as counterproductive as it means that less revenues would be collected in the 2012 tax year (since less resources would be available to the IRS).

In response to the budget cut, the IRS and the Taxpayer Advocate Service (TAS) released various reports. In the TAS response report posted on the IRS website, the organization’s head, Nina E. Olson, lamented that a reduction of the budget for the IRS (and the TAS by extension) meant that services to taxpayers would be compromised and the IRS’s ability to raise the expected funds for the government would be reduced.

According to the report, the IRS had undergone tough years in both 2009 and 2010 with complex tax laws, including the First-Time Homebuyer Credit, Economic Stimulus Payments, and Making Work Pay Credit, that caused problems for both the IRS and the taxpayer. Within the same period of time, the IRS had also made significant improvements in its operations and its customer services. These improvements included the commissioning of the Customer Account Data Engine 2 (CADE 2) to facilitate tax returns, introduction of new rules for tax preparers, and improving the implementation of various Offer in Compromise infrastructures.

However, in spite of the high expectations on the IRS to keep up with state of the art technology, reduce on the tax gap, manage tough tax laws and tax reforms, and raise more funds for the government, the IRS is still challenged with more demands from taxpayers. According to the report, the responsiveness to taxpayers’ telephone calls has reduced from 87% in 2004 to 74% in 2010, meaning that more calls are being dropped. The taxpayers forwarding tax referral cases to the TAS have also increased drastically from 169,000 in 2004 to 299,000 in 2010. This means that there are higher expectations from the taxpayer in terms of service levels, requiring more resources to the TAS. The TAS is an escalation department in the IRS that was introduced by an Act of the Congress to help handle cases from the taxpayer that the IRS did not manage to handle because of its heavy workload.

Given the reduction of the budget, the report indicates that the IRS may be limited in its service levels going into the 2012 tax year. For a start, the TAS may have to cut down on the cases handled, leaving some taxpayers to fend for themselves. The IRS may also compromise on its telephone call pick up rate, responsiveness to inquiries, and its implementation of various services to improve on the customer experience. The IRS may also fall back on the targeted revenues that it will collect for the 2011 and 2012 tax year, following the budget slashes.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. / Tel:888.321.6188

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