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IRS Cuts: Good News for Deadbeats?

The Internal Revenue Service commissioner is warning  Congress that anticipated cuts to the agency’s funding will result in a “noticeable degradation” of services, including audits and efforts to collect unpaid taxes.

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In a letter sent to legislators last week, commissioner Douglas Shulman wrote that if Congress moves ahead with its plan to reduce the IRS’s budget by about $500 million next year, the agency would have to reduce the number of workers in its enforcement department. Such cuts, he added, would lead to a 5% to 8% decrease in collection efforts, including audits, which would reduce revenue by about $4 billion.

But what sounds like good news for deadbeats could be bad for regular taxpayers. Shulman warned that the spending cuts would mean that half of the  taxpayers trying to contact the agency for help would get busy signals or will “hang up in frustration.” Responses to letters, including those taxpayers trying to resolve account issues, could be delayed up to five months, he wrote, and small businesses could have more trouble reaching the IRS to work out a payment plan.

To prepare for the cuts being considered, Shulman said he has started reducing the agency’s spending, although he didn’t disclose what specific cuts the agency is making. An IRS spokesman said the agency could not provide additional details on the planned cuts.

For fiscal 2011, which ended Sept. 30, the IRS received $12.1 billion, according to Bloomberg. The House Appropriations Committee has approved a bill with an $11.5 billion budget for the agency, while the Senate’s companion bill has it at $11.7 billion. While neither of those bills have reached President Barack Obama’s desk, tax experts say those levels aren’t likely to change much as the government tries to reduce its spending in light of the debt-ceiling agreement reached in August.

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    • Obama adminstration has just proposed major increases in IRS budgets to catch cheaters.Protax LLC

    • The IRS is not going away. There has been an 800% increase in IRS accuracy related penalties in the past five years. The IRS is also using tactics such as “John Doe” subpoenas to states to get tons of information they never had access to. See http://accountalent.com/?p=247

      Joe Faris, CPA
      Accountalent Management Corp.

    • The IRS could make up for any budget cuts just by cutting millions of dollars in waste.
      irshelpftlauderdale.com

    • The IRS could make up for any budject cuts just by cutting millions of dollars in waste.
      irshelpftlauderdale.com

About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.

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