IRS budget cuts costing taxpayers

The Internal Revenue Service has few fans but serves an essential function. Currently, budget cuts and other issues at the agency are costing taxpayers.

Budget cuts causing issues

Few federal agencies are as maligned as the Internal Revenue Service. Joe or Jane Taxpayer may think that trimming the IRS budget is a blessing. However, there are consequences of making it harder for the IRS to do its job.

According to the Washington Post, the operating budget for the Internal Revenue Service for this year is $11.8 billion, $1.5 billion less than what was requested by the president and $300 million less than last year.

Ninety-two percent of the IRS budget, according to Forbes, is for labor. Budget cuts mean fewer people to answer questions or review tax returns. Staffing to take phone calls has even declined; according to CNN, the annual National Taxpayer Advocate report found that between 2004 and 2010, the percentage of phone calls the IRS was able to answer dropped by 17 percent. The agency also took six weeks on average to respond to letters or faxes.

[Getting short term loans for bad credit can be faster than getting a tax refund]

Errors of automation

The IRS has to increasingly rely on automation to process tax returns. Nina Olson, the National Taxpayer Advocate, found in her annual report to Congress that IRS computers have detected more errors in recent years, according to CNN, flagging 4 million returns in 2006 for mathematical errors compared to 10.6 million in 2010. However, not every return the IRS flagged was actually wrong. For instance, 300,000 returns were flagged in 2010 for errors on the dependent children exemption. The IRS reversed 55 percent of those holds.

Nina Olson also found, according to Forbes, that of the 1.05 million tax refunds held by the IRS for potential fraud by the Accounts Management Taxpayer Assurance Program or AMTAP, that the IRS couldn’t verify anything was wrong with 11 percent of the held refunds. Furthermore, of the 21,000 people who complained, 75 percent were eligible for their claimed refunds and waited a further six months on average to receive it.

Olson also found that of the 429,108 returns flagged under AMTAP’s “Operation Mass Mail” fraud deterrence program, which sets allegedly phony tax returns aside without processing them, 34,053 were legitimate.

More loopholes means more chasing fraud

As more tax breaks are offered, the more fraud artists try to take advantage. In the first six months of the First Time Homebuyer Tax Credit’s existence, according to the Wall Street Journal, 19,000 people tried to claim the credit without having bought a home. A further 74,000 had previously purchased homes, and 500 people under the age of 18 claimed the credit, one of whom was 4 years old.

According to the Washington Post, tax fraud cases at the IRS increased by 72 percent from 2010 to 2011. The tax code itself, a nightmare to navigate, has undergone 4,430 changes from 2001 to 2010, including 579 in 2010 alone. The agency simply lacks the resources to keep up.

Sources

Washington Post

CNN

Forbes

Forbes: http://www.forbes.com/sites/janetnovack/2012/01/11/irs-advocate-new-taxpayer-rights-crisis-is-brewing/

Wall Street Journal: http://online.wsj.com/article/SB10001424052748703574604574501253942115922.html

Washington Post: http://www.washingtonpost.com/politics/irs-tight-budget-hurting-taxpayers-watchdog-says/2012/01/10/gIQAXVXwqP_story.html