The recently passed Treasury appropriations bill for next year sets a budget of $10.7 billion for the Internal Revenue Service, with most of the agency's $434 million increase tabbed for enforcement efforts.
The bill includes almost $7 billion for general tax enforcement activities, an 8 percent increase over the 2005 fiscal year.
The increase, which the agency had to lobby for two years to receive, only makes sense, especially when considering the potential impacts it could have on reducing the country's tax gap. IRS Commissioner Mark Everson has estimated the gap -- the difference between taxes owed and taxes paid in the country -- to be around $300 billion.
If the old axiom is true -- that you have to spend money to make money -- it makes simple sense to lay down the extra cash now. A year ago, the White House asked Congress for a 5 percent overall increase, adding $300 million in enforcement funding. Congress ended up meeting the Bush administration almost halfway, increasing the enforcement budget by a paltry $134 million for the 2005 fiscal year.
What exactly Everson's grander plan for the agency's collection policies is remains to be seen. A Government Accounting Office report issued over the summer revealed that the IRS has concerns about the accuracy of its tax gap figures and has inadequate data to determine why taxpayers don't comply with the tax laws. The report concluded that the IRS has not established long-term goals and does not regularly collect data to measure its progress toward closing what the GAO estimated to be a $350 billion tax gap.
In fact, nearly every report out of the GAO addressing the IRS mentioned a need to establish a more "results-oriented approach" to reducing the tax gap, but it's just been in recent years that the agency has begun collecting on-the-record data and trying to determine why taxpayers are noncompliant.
In January 2006, the IRS plans to launch a nationwide pilot program that uses three private collection agencies to assist in tax collection. The program will focus on individual taxpayers; accounts owing less than $25,000 and deemed "highly collectible" by the IRS; and, unassigned accounts.
The initiative is part of an overall redevelopment of the IRS collection strategy that envisions multiple different consequences for noncompliant taxpayers depending on taxpayer characteristics. Months ago, National Taxpayer Advocate Nina E. Olson, who has urged the IRS to focus more broadly on steps to increase voluntary compliance, voiced concerns about private collectors will operate under rules of profit maximization and may not provide the customer service that educates taxpayers on their responsibilities.
But upping the agency's budget and trying something, anything, new to put a dent in collecting those hundreds of billions, should be a simple enough equation, and one that immediately pays out dividends.
Halfway through his term, Everson has been pointing to his agency's statistical improvement in nearly all collection categories. Fiscal year 2006, when Everson is allowed to put new programs in place and direct new funding to the sore spot where everyone in Washington's attention has been focused, only makes sense.
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