IRS is underfunded but ready for health care law, commissioner says

The Internal Revenue Service needs its requested 8 percent budget increase to make up for cuts exacted in the past two years, IRS Commissioner Douglas Shulman told Congress in a pair of hearings. The service is well-prepared to implement coming tax changes from the Affordable Care Act, despite a loss of 5,000 employees, he said.

Testifying on Wednesday to the House Appropriations Financial Services and General Government Subcommittee, Shulman said the fiscal 2013 request of $12.8 billion would allocate an additional $639.3 million to “restore lost resources resulting from reductions in IRS funding made over the past two years.”

He said the agency’s efforts to become more efficient have resulted in $1 billion in savings from fiscal 2009 through the proposed budget for 2013 -- thanks in part to “reductions in outside contracts, training and noncase-related travel.”

The drop in head count was accomplished through buyouts for 1,000 employees, attrition and a hiring freeze. Some 3,000 employees left enforcement operations.

“The IRS’ workforce is our greatest asset,” Shulman said.

“Three years ago, I embarked on a campaign to make the IRS the best place to work in the federal government,” he said, noting the agency had risen from a ranking of 127 to 65 in the Partnership for Public Service’s “Best Places to Work in Federal Government” survey. It also ranked third among large agencies in employee engagement.

Despite recent cutbacks and a barrage of end-of-session tax legislation, the IRS’ own satisfaction survey shows stable rates among employees. The survey of taxpayer satisfaction by the American Customer Satisfaction Index showed IRS services rated 73 on a scale of 100 by individual tax filers, he noted, a three-point rise over the previous year.

During the current tax filing season, the IRS directly deposited 51.3 million refunds to taxpayers compared to 49.8 million in 2011 -- a 3 percent increase, Shulman said Thursday before the House Ways and Means Oversight Subcommittee. As of March 10, it had received more than 70 million individual returns.

Republicans on the panels quizzed Shulman sometimes skeptically during a month of heightened political maneuvering as the U.S. Supreme Court prepares for oral arguments on the constitutionality of President Obama’s health care reform. Oversight Chairman Charles W. Botany Jr., R-La., asked whether the IRS had sufficient resources, particularly for enforcement. Rep. Lynn Jenkins, R-Kan., noted the Obama budget calls for $360 million and 900 new employees for the IRS to implement the tax credits under the Affordable Care Act, which contains, she said, “the controversial individual mandate penalty.”

Shulman said the IRS was experiencing “the predictable effect of having less in resources,” but said he was “proud that employees had mitigated the effects through efficiencies and working smarter.” He said his team had been balancing its focus between enforcing compliance and providing taxpayer service, while installing information technology for health care implementation using funds provided through an earlier authorization.

Responding to a question about health-care law tax credits many small businesses describe as too complicated, Shulman urged Congress to approve the president’s fiscal 2013 budget, which he said, “has a significant proposal” to simplify and expand the small business credits.

He also said preparations were on track for state health insurance exchanges scheduled to stand up in 2014.

“I understand the heartfelt policy debate on the Affordable Care Act -- some like it, some don’t,” Shulman said. “But there are a lot of constituents in every district who will expect their tax credits when they show up at the exchanges. We’re not involved in health policy, but in moving the money to make the law work.”