Staff Reductions & Insufficient Funding Will Dramatically Impact IRS in 2015 And Beyond

Staff Reductions & Insufficient Funding Will Dramatically Impact IRS in 2015 And Beyond

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Last Tuesday, IRS Commissioner John Koskinen addressed the New York State bar Association Tax Section in New York. His comments provide keen insight into the going-on’s at the IRS. Mr. Koskinen’s most important announcement centered on the agency’s anticipated reduction in the number of rulemaking projects as a result of budgetary constraints.

Although releasing guidance is one of the agency’s core functions, there are simply not enough attorneys in the Office of Chief Counsel to shoulder the burden. Nor are there any plans on the horizon to hire more workers, in light of the agency-wide hiring freeze.

“Our office of chief counsel continues to make every effort to issue guidance in a timely manner,” Koskinen said. “However, we may be at the point where we need to scale back the guidance plan in order to better target the resources we spend on guidance.”

Mr. Koskinen described how badly understaffed the Office of Chief Counsel was, citing a 10% reduction in the number of attorneys since 2011 through attrition.

Laying out a road map for the months that lie ahead, Mr. Koskinen said that the IRS will need to assess how it will allocate scarce resources for guidance. In doing so, its priority will be on issuing guidance related to the filing of Form 1040s, which has the distinction of being the most widely filed tax form. As a result, guidance sought for more highly specialized areas may suffer, he said.

According to Mr. Koskinen, the IRS also has fewer auditors, which can mean only one thing: that enforcement has suffered. Citing statistics from fiscal year 2014, Mr. Koskinen said that the agency audited 1.2 million individual taxpayers. While that might sound like a lot, it was the lowest level in a decade.

The agency has also been struggling on another front: keeping up with audits of large partnerships. According to Mr. Koskinen, the number and complexity of partnerships has grown exponentially over the years, and partnership audit rules that were once considered the “standard” for the industry have now gone the way of the dinosaur. Very simply, they have become a hindrance, instead of a help, he said.

These obsolete partnership audit rules were the inspiration behind the IRS asking Congress to overhaul them. Specifically, Mr. Koskinen wants Congress to enact legislation that would streamline partnership audit and adjustment procedures. One such change that he requested is for audit adjustments to be sent to direct partners rather than every partner in a partnership, which can number in the thousands.

Against this backdrop, the debate rages on over the IRS budget in Congress. Earlier this month, President Barack Obama proposed a $12.9 billion budget for the IRS for fiscal year 2016, representing a $2 billion – or 18 percent – increase in funding for the cash-starved agency. Republicans in Congress have cut the IRS budget by about 10 percent since 2010, hampering the ability of the agency to function, the White House said.

This budget request is likely to get a chilly reception when it makes its way into the Republican-controlled Congress, where lawmakers have already slashed the agency’s funding. In December 2014, Congress approved a fiscal year 2015 spending bill that included $10.9 billion in funding for the IRS, which was $345.6 million less than the IRS’s budget just one year earlier in 2014.

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