IRS UNDERFUNDED TO SERVE TAXPAYERS, COLLECT TAX
The significant, chronic underfunding of the IRS poses one of the most significant long-term risks to tax administration today, including reduced revenue collection, impaired taxpayer rights, and greater taxpayer burden. Because of funding shortages, the IRS cannot answer millions of taxpayers’ telephone calls or timely process their letters; the amount of tax due but uncollected stands at nearly $400 billion each year; taxpayers believe the tax laws are not fair; and the federal deficit is unnecessarily large.
The IRS serves as the de facto Accounts Receivable Department of the federal government. On a budget of about $11.8 billion, the IRS collected about $2.52 trillion in FY 2012 for an average return-on-investment of about 214:1, yet the appropriations process treats the IRS like any other discretionary spending program. Some taxpayer problems result from poor IRS planning or execution, but the lack of sufficient funding is the sole or significant cause of many of these problems.
The National Taxpayer Advocate recommends that Congress consider revising the budget rules so that the IRS is “fenced off” from spending ceilings and is funded at a level designed to maximize tax compliance, particularly voluntary compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden. She also recommends that Congress keep in mind in allocating IRS resources that tax compliance requires an appropriate balance between high-quality taxpayer service and effective tax-law enforcement.
Because the IRS is the federal government’s accounts receivable department and generates a substantially positive return on investment, it is self-defeating to treat the agency like a pure spending program. With most spending programs, a dollar spent is simply a dollar spent from a budget perspective. With the IRS, a dollar spent generates many dollars in additional revenue, and conversely, a dollar not spent translates to a greater decrease in revenue collection, thereby adding to the budget deficit.