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IRS commissioner goes before Congress as tax gap opens wide

When legitimate warnings go unheeded, it is only natural to revisit them when the warned-of events come true.

This is not really a case of saying "I told you so." It's a matter of continuing to call attention to an ongoing problem that has not yet been resolved.

In this post, then, we will discuss how the IRS's chronic budget problems are indeed impacting the agency's tax collection mission, just as many informed commentators have feared.

It’s an issue we’ve been following for quite some time. In our September 20 last year, for example, we noted that the National Taxpayer Advocate has been concerned for several years about the inability of Congress to adequately fund the IRS.

Due to that funding shortfall, the agency has had to cut back on its level of customer service. The number of tax audits has also been going down. These cutbacks have curtailed the IRS’s capacity to fulfill its tax collection mission – and resulted in less revenue for the federal government.

IRS Commissioner John Koskinen appeared before a Congressional subcommittee yesterday to testify about the problem.

Koskinen testified that the IRS will conduct about 100,000 fewer tax audits this year due to Congressional cuts in the agency’s budget. The resulting loss of revenue, he testified, is large: $3 billion.

This differential between taxes owed and taxes that are actually collected is often called the “tax gap.” It’s a gap that is larger and getting larger, in inverse proportion to employee headcount at the IRS.

Could private contractors step at least partially into this gap and help the government out with tax collection? Koskinen told the subcommittee that the IRS tried that idea during the George W. Bush administration. It ended up backfiring, however, costing more money than it raised.

Source: Reuters, "U.S. could lose $3 billion as budget forces fewer tax audits - IRS chief," Patrick Temple-West, May 7, 2014

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