GOP looks to cut IRS budget despite returns

WASHINGTON (AP) -- 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. The Democrat-controlled Senate is unlikely to pass a budget cut that big. But given the political climate on Capitol Hill, Obama's plan to increase IRS spending is unlikely to pass, either.

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.

"At a time when we have to tighten the belt from a budgetary standpoint, we're seeing massive new responsibilities laid at the doorstep of the IRS and it's making it more difficult for them to meet their charges of enforcement as well as customer service to the taxpayer," said Rep. Charles Boustany, R-La., chairman of the House Ways and Means oversight subcommittee.

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. "I think you will see House Republicans have a real discussion about the role of the IRS in this country as we are trying to grow the economy and create jobs."

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.

"The IRS has been in what I would call a rebuilding mode to rebuild their workforce from the mid-90s, and their staffing is still about 20 percent lower than it was in the mid-90s," said Colleen M. Kelley, president of the National Treasury Employees Union, which represents IRS employees. 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.

The IRS only takes such action against taxpayers who have ignored numerous notices and who owe significant back taxes. For example, taxpayers who owe at least $10,000 in delinquent taxes and ignore numerous IRS notices would get an automatic lien placed on their property.

"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. "People do what they're rewarded for. Right now the IRS reward system for its employees seems to be, you get promoted faster, you get more pay raises, if you're more aggressive than if you seek to work things out with a taxpayer."

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.

Shulman said the agency tries to strike a balance between enforcement and taxpayer service. He recently announced a program to help people struggling to pay delinquent tax bills by reducing the number of property liens and easing rules for small businesses to enter into installment agreements.

Rep. Jo Ann Emerson, R-Mo., who chairs the House Appropriations subcommittee that oversees the IRS, said the agency is more respectful of taxpayers' rights than it was in the 1990s. But Congress is in a budget-cutting mood, she said, and the IRS will not be immune.

"At the end of the day, a 9 percent increase is substantial," Emerson said. "I don't see it happening."

© 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.