The Obama administration has increased its budget request for the Internal Revenue Service for fiscal year 2013 to approximately $12.8 billion to make up for recent budget cuts.
The $12.8 billion represents an 8 percent increase of approximately $944.5 million over the level enacted in fiscal year 2012, but only a 5.3 percent, or $639.3 million, increase from the level enacted for fiscal year 2011.
A significant part of the increase from fiscal 2012 stems from the administration’s request to restore lost revenue resulting from reductions in IRS funding made over the past two years. The request is designed to provide the resources necessary to administer and enforce the current Tax Code, implement recent changes to the law to update the Code, and serve American taxpayers in a timely manner.
In fiscal 2011, the IRS collected $2.415 trillion in taxes, representing 92 percent of federal government receipts. The IRS processed more than 144.7 million individual returns during the 2011 filing season and issued almost 110 million refunds totaling $345 billion, the agency pointed out.
In fiscal year 2013, the IRS expects to identify nearly $71 million in cost savings from increased use of electronic return filing, reductions in non-case related travel, and the streamlining of operations.
The fiscal 2013 budget includes $403 million for new IRS enforcement activities, which are expected to raise $1.48 billion in revenue annually at full performance, once new hires are fully trained and develop broader experience by fiscal 2015, representing a 4.3-to-1 return on investment.
“The return on investment is even greater when factoring in the deterrence value of these investments and other IRS enforcement programs, which is conservatively estimated to be at least three times the direct revenue impact,” said the IRS.
The enforcement budget also includes $200 million in additional examination and collection programs that the agency anticipates will generate more than $1.1 billion in additional annual enforcement revenue by fiscal 2015. The IRS plans to use the money to improve international tax compliance by businesses and individuals, in part by hiring more international technical specialists, and to expand its efforts to identity tax refund fraud and tax-related identity theft. The IRS also plans to use the money to implement new information reporting requirements and enhance oversight of complex financial situations, including transfer pricing and uncertain tax positions.
The budget request also includes $35 million to strengthen tax return preparer compliance. The IRS noted that it is developing requirements to establish mandatory competency testing and continuing education for tax preparers to ensure they have a minimum level of competency and adhere to professional standards.
“This initiative is core to the IRS’ tax gap strategy and will increase government revenue, and support high-priority, preparer-related enforcement activities,” said the IRS.
In addition, the budget request provides $128 million to support the agency’s efforts to implement programs designed to ensure compliance with recent changes in tax laws—such as reporting provisions related to merchant payment cards and third-party reimbursements, basis reporting on securities sales, and tax provisions in the health care reform law—and to help taxpayers understand them.
The administration’s fiscal year 2013 budget also requests funding for the IRS to continue the development of new information technology systems. It also provides money for substantial modification and enhancement of the IRS’s existing systems to help implement the new premium assistance tax credit and other tax law provisions related to the insurance exchanges created in the Affordable Care Act.
The IRS said it would continue with the modernization of its IT systems in fiscal year 2013, strategically investing in capabilities such as online taxpayer services, and focus on the second phase of its core taxpayer account database project, known as Customer Account Data Engine 2, or CADE 2, to ensure the long-term viability of the agency’s tax processing systems.
In the past year, the IRS noted that it delivered the most significant update to its core tax processing system in decades. Through the deployment of the first phase of CADE 2, the IRS transitioned to a daily processing cycle from a weekly batch cycle. Also for the first time, IRS processing systems began accepting all 1040 forms electronically through a modernized e-filing capability.
The fiscal 2013 budget request also provides funding for the IRS to continue delivering services using a variety of in-person, telephone and Web-based methods to help taxpayers understand their tax obligations, correctly file their tax returns and pay taxes due in a timely manner.
The IRS said it is committed to expanding the use of electronic transactions, including increasing the electronic filing rate and expanding the taxpayer service options available through the Internet.
In 2011, there were more than 319 million visits to IRS.gov, and more than 77.9 million taxpayers checked their refund status by accessing the Where’s My Refund? page in English or in Spanish on the IRS Web site.
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