IRS to cut estate tax auditing workforce with buyouts
Legislators question agency’s plan to cut nearly half of estate tax lawyers by Sept. 30.
The Internal Revenue Service plans to offer buyouts to cut 157 of its 345 estate tax lawyers as well as 17 support personnel, according to internal plans leaked to The New York Times and confirmed by the agency.
The reorganization, which the agency has said is a response to the falling number of filers subject to estate tax provisions, has drawn the attention of legislators who question the wisdom of cutting auditors reported to be among the agency's most cost-effective collectors. Kevin Brown, commissioner of IRS' Small Business/Self Employed Division, said estate tax lawyers uncover an average of $2,200 owed to the government for each hour that they work.
Twenty-two members of Congress, led by Rep. Steven Rothman, D-N.J., on Friday sent a letter to IRS Commissioner Mark Everson asking that he delay implementation of the plan until details have been presented to Congress and members have had a chance to fully review them.
Brown confirmed the agency has obtained buyout and early-out approval from the Office of Personnel Management, but said the estate and gift tax division will continue to audit the same percentage of returns as it does currently. The total number of returns will drop because of a tax law change that increased the dollar threshold for estate tax filing. That threshold went from $1.5 million in fiscal 2004 and 2005 to $2 million during the next three years, and will rise to $3.5 million in 2009.
Brown said money saved from the personnel cuts would be redirected to increasing audits of returns for filers with incomes exceeding $1 million. These currently have a low audit rate of 5 percent, as compared to a 28 percent rate for estate and gift tax returns.
The National Treasury Employees Union was highly critical of the IRS plan. "There's no way to assume that two months is a reasonable time frame for employees to make these very serious and life-changing decisions," about retirement, said President Colleen Kelley.
She said NTEU is working with the IRS to set up a bargaining session on the matter, which may take place in mid-August. One of the union's points of negotiation relates to the employees' status; the attorneys who make up most of the group to be cut are excepted service employees. This means they were hired outside of the normal competitive process and thus are not entitled to priority placement in the career civil service.
Kelley said she hoped to obtain support on Capitol Hill for a legislative fix that would give the affected employees career status so they can be eligible for other positions at IRS.
Rothman has helped NTEU before in its campaign to block the outsourcing of tax collection. His Friday letter not only asked for information on the tax impacts of the program, but for an accounting of how the redirected funds would be used to hire additional employees elsewhere at the agency.
"The IRS has repeatedly told Congress that the problem of the wealthiest Americans failing to pay the true amount of taxes owed is a growing problem," the letter stated. "We cannot understand why you would want to eliminate auditors from a division that is not only the most productive, but also, according to your agency, where there is a growing need for audits."
"With no congressional review whatsoever of this plan, I don't see how political appointees at the IRS can deny charges that these layoffs are intended to weaken enforcement of tax laws that the administration opposes," Rothman commented in a statement. "It's in their best interest to work with Congress before moving forward."
But Brown said Friday the numbers presented in the New York Times article do not show the full picture. While the average hourly collection in the estate tax and gift group is $2,200, he said the median collection is about $200, meaning half the collections are for less than that amount. In an ideal world, he said, the average and the median would be close together.
He said the agency does not have a fixed target for how much to reduce the estate tax auditing workforce, and that it would be premature to speculate about the possibility of a reduction in force. But with 57 percent of that workforce eligible for retirement, he said, the agency would take a wait-and-see approach.
"We can maintain our coverage level with fewer bodies," Brown said, "and we can take those resources and make better use of them elsewhere."