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IRS Oversight Board Issues Special Budget Report Recommends IRS to be Funded at President's FY2014 Requested Level; Describes Budget as Credible, Reasonable and Appropriate

(May 24, 2013) The IRS Oversight Board today released its FY2014 IRS Budget Recommendation Special Report, saying that the President’s recommended funding of $12.8 billion for the coming fiscal year is “credible and reasonable” and is “appropriate for the IRS to carry out both its statutory and new responsibilities.”

One of the Board’s most important statutory responsibilities under the IRS Restructuring and Reform Act of 1998 (RRA 98) is to review and approve the annual IRS-prepared budget request submitted to the Treasury Department. The President is also required to submit the Board’s budget recommendation without revision to Congress along with the Administration’s request.

The IRS Oversight Board believes that is important to see the President’s request and the Board’s recommendations within the context of today’s challenging and austere budget environment. The IRS’ budget has been cut every year since FY2010 with the biggest reductions coming in FY2013 through the sequestration. Today, the IRS is operating under a Continuing Resolution and sequestration rules that fund the agency at $600 million less than the FY2012 level, and $1 billion less than FY2010.

To absorb these budget cuts, the IRS has sought cost efficiencies wherever it could, such as dramatic curtailments in travel, training, office space and outside contracts. However, the IRS’ greatest asset and expense is its workforce. Stagnant funding and budget cuts have forced the agency to institute an exception-only hiring freeze, allow some positions lost to attrition remain unfilled, and offer buyouts to a large number of employees. All told, approximately 8,000 full-time positions have been lost since 2010, leaving the IRS’ workforce at its lowest level in more than a decade.

“The Board believes that the current budgetary path is no longer sustainable,” said Board Chairman Paul Cherecwich, Jr. “We have already seen erosion in level of service on IRS’ toll-free telephone lines. Moreover, the IRS is predicting that it will collect less enforcement revenue this year as compared to last. This deterioration in across-the-board performance will be become more pronounced in 2014. This is the not time to make short-sighted budget cuts. This is the time to restore continuity and make the needed investments in taxpayer services, enforcement and operations support,” he concluded.

Although slightly lower than what the Board initially recommended – approximately $200 million – the President’s FY2014 budget request makes significant investments in these three priority areas. The Board strongly supports the President’s request for $2.41 billion for Taxpayer Services in FY2014 that includes an additional $177 million to raise telephone level of service to close to the 80 percent recommended by the Board as acceptable. It will also help the IRS meet projected increased call demand, as major portions of the Affordable Care Act take effect, including those related to the health insurance exchanges.

The Board further advocates for the $5.67 billion the President requests for enforcement activities in FY2014. This will help bolster IRS compliance efforts and provide balanced audit coverage across taxpayers with expanded coverage of high-wealth individuals and enterprises and partnership entities.

The President’s request includes a number of high return-on-investment ($6-to-$1 in FY2016) tax enforcement and compliance initiatives that would be funded through a program integrity cap adjustment. This could be a problem, the Board cautioned in its report. “Although requested many times, a program integrity cap has not been provided to the IRS by Congress in recent years. We hope that this year is not a repeat of the past,” observed Mr. Cherecwich.

Lastly, the Board supports the President’s request for $4.48 billion for Operations Support and $300.8 million in Business Systems Modernization (BSM) activities in FY2014. The increased funding in Operations Support would help support a number of taxpayer service and enforcement activities. The Board believes that this is a wise investment in human capital, which is critical to the long term health of tax administration.

The budget request would also extend the Streamlined Critical Pay Provision contained in RRA 98 through September 30, 2018. However, the Board has long advocated a permanent extension of the provision. It is a proven and valuable tool in bringing specialized expertise to IRS initiatives, ranging from information technology to sophisticated and complex areas of international taxation, such as transfer pricing, and should be made permanent.

While the Board supports the President’s BSM funding request, it is also concerned that a sense of complacency does not set in following last year’s successful launch of the Customer Account Data Engine (CADE) 2. Funding for future releases of CADE and other information technology programs should not be reduced or delayed. Such a mindset could affect both Taxpayer Service and Enforcement initiatives, including a robust use of data analytics that can expose noncompliance and criminal activity, including refund fraud.

In its report, the Board states that it appreciates that the FY2014 budget request is the beginning of a long process that can be affected by a number of factors, including the larger debate over deficit reduction. “However, that should not prevent us from beginning a productive dialogue about how to fund the IRS so it may achieve its balanced mission of customer service and enforcement,” concluded Board Chairman Cherecwich.

The Board’s full report can be found at

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