Tax enforcement revenue collected by the Internal Revenue Service has declined for the second straight year, according to a new report publicly released Tuesday by the Treasury Inspector General for Tax Administration.
TIGTA’s report, a compilation of statistical information reported by the IRS, provides information about how the IRS focuses its compliance resources and the impact of those resources on revenue and compliance over time. Enforcement revenue collected declined by 9 percent in Fiscal Year 2012, from $55.2 billion to $50.2 billion. This has decreased for two straight years and is 13 percent less than the $57.6 billion collected in fiscal year 2010. The 13 percent reduction in enforcement revenue correlates with the 14 percent reduction in the number of enforcement personnel at the IRS as a result of years of budget cuts.
“The IRS is facing many new challenges while operating with fewer resources and employees. Several indicators showed the effect of this, including a decrease in enforcement revenue and a continued increase in accounts receivable,” said TIGTA Inspector General J. Russell George in a statement.
George noted that since fiscal year 2010, approximately 8,000 full-time IRS positions have been lost—about 5,000 from front-line enforcement personnel. In addition to offering early retirements and buyouts, IRS records indicate that more than one-third of executives and nearly 20 percent of nonexecutive managers are currently eligible for retirement.
TIGTA conducted its review in response to continuing interest in the analysis and trending of the IRS’s Collection and Examination function activities. The objective was to provide statistical information on those activities.
During fiscal years 2011 and 2012, the IRS encountered challenges that included administering recent legislative changes within an environment of decreasing resources. For example, approximately 50 of the 500 Affordable Care Act provisions add to or amend the Tax Code. At the same time, the IRS operated under a continuing resolution for fiscal year 2012 that funded it at a little more than $11.8 billion, which is a 2.7 percent reduction since fiscal year 2010.
IRS Collection function activities showed mixed results for fiscal year 2012. For the third straight year, revenue collected on taxpayer delinquent accounts by the IRS Collection Field function increased. However, collections by the Automated Collection System declined for the first time in four years. The IRS continues to receive more new taxpayer delinquent accounts than it closes.
The amount owed in the queue of unassigned inventory of tax returns increased 22 percent in fiscal year 2011 ($56.2 billion) and 12 percent in fiscal year 2012 ($63.1 billion) and has grown 46 percent over the past five years.
The Examination function’s recent decrease in revenue agents and tax compliance officers contributed to an overall decrease in examinations. This reduction is attributable to decreased examinations of individual tax returns, TIGTA’s report found.
“The IRS faced many challenges during fiscal years 2011 and 2012, including implementing provisions related to new tax legislation and operating with fewer resources and employees,” said the report. “Several indicators showed the effect of these challenges, including a decrease in enforcement revenue, a continued increase in accounts receivable, an increase in the number of cases that might never be worked, and a decrease in the overall number of examinations. Nevertheless, many indicators increased, including gross collections and the examinations of certain tax returns. Some of these trends are cause for concern, especially given that diminished enforcement could also affect voluntary compliance over time.”
TIGTA made no recommendations in this report. IRS officials were provided an opportunity to review the draft report, but did not provide any comments.
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