GOP studies IRS for budget cuts

WASHINGTON – Every dollar the Internal Revenue Service spends for audits, liens and seizing property from tax cheats brings in more than $10, a rate of return so good the Obama administration wants to boost the agency’s budget.

House Republicans, seeing the heavy hand of a too-big government, beg to differ. They’ve already voted to cut the IRS budget by $600 million this year and want bigger cuts in 2012.

The IRS has dramatically increased its pursuit of tax cheats in the past decade: Audits are up, property liens are up and asset seizures are way up. President Barack Obama and Democrats in Congress see stepped up enforcement as a good way to narrow the nation’s staggering budget deficit without raising tax rates or cutting popular spending programs.

“It makes little sense to cut the agency that collects revenue,” said Rep. Jose Serrano of New York, the top Democrat on the House subcommittee that oversees the IRS budget.

IRS Commissioner Doug Shulman told the committee Tuesday that the $600 million cut in this year’s budget would result in the IRS collecting $4 billion less through tax enforcement programs.

Obama has already increased the IRS budget by 10 percent since he took office, to nearly $12.5 billion. The president’s budget proposal for 2012 would increase IRS spending by an additional 9 percent – adding 5,100 employees.

Republicans, however, view the IRS as an ideal target in their promise to reduce government spending, in part because the agency will play a big role in implementing Obama’s new health care law. If the law survives court challenges, the IRS will administer tax credits for businesses that provide health insurance to employees, as well as credits to help individuals pay for coverage. The agency also is tasked with enforcing the mandate that most Americans buy health insurance, starting in 2014.

Obama’s 2012 budget proposal for the IRS includes $473 million and 1,269 new positions to start implementing the health care law.

Republicans want to deprive the agency of money to enforce the new law, but the budget cuts go deeper than health care, reflecting GOP concerns about an agency that touches nearly every business and adult in the nation – as well as many that operate abroad.

“We’re hearing from small businesses a repeat of the horror stories from more than 10 years ago,” said Rep. Pat Tiberi, R-Ohio, chairman of the House Ways and Means subcommittee on select revenue measures.

In the late 1990s, Congress held hearings so taxpayers could relate horror stories about dealing with IRS tax collectors. The hearings resulted in a 1998 law that reorganized the IRS and largely reined it in, guaranteeing taxpayers rights and due process when the IRS files property liens, seizes bank accounts or garnishes wages.

The law led to a steep drop in enforcement actions against delinquent taxpayers. From 1997 to 2000, the number of levies, or asset seizures, fell from 3.7 million to 220,000, and the number of liens was nearly cut in half. Agency staffing was gradually reduced from a high of 117,000 employees in 1992 to about 91,000 in 2008.

Obama’s 2012 budget would bring overall staffing up to 100,500.

Enforcement numbers have rebounded, with the agency collecting $57.6 billion last year through enforcement actions – on an enforcement budget of $5.5 billion. In 2010, the agency used 3.6 million levies to seize assets, and filed nearly 1.1 million property liens.

“From the top down, the IRS has been pushing more for enforcement and sometimes employees overstep those bounds,” said Robert McKenzie, a tax lawyer with the firm Arnstein & Lehr LLP of Chicago, and a member of the IRS Advisory Council, which evaluates IRS policies.

McKenzie said it would be “stupid” to cut the IRS budget while the nation is grappling with a record $1.5 trillion budget deficit. He suggested that Congress should instead provide more oversight to make sure the agency respects taxpayer rights.