IRS Staff Cuts of Up to 30 Percent Raise Risks, GAO Finds

As Congress prepares to pass a fiscal 2016 budget cut for the Internal Revenue Service, its watchdog is warning that pervious reductions over the past five years could harm program effectiveness and increase the risk of poor service.

In a newly released report completed in June, the Government Accountability Office reviewed the impact of cuts to the agency since fiscal 2010, which prompted reductions in full-time equivalent employees in three major “fund centers.” The Human Capital Office, the Office of Chief Counsel and the Small Business/Self-Employed Division each reduced staff by 16 to 30 percent.

By prioritizing legally required programs (such as tax litigation), the agency cut spending on other programs and services, which meant limiting probes of those who failed to file tax returns, delaying software acquisitions and postponing some 24,000 regular five-year background reinvestigations for moderate-risk employees. “Such scaled back activities potentially reduce program effectiveness or increase risk to IRS and the federal government,” GAO said.

Specifically, non-filer investigations dropped 43 percent and production of private letter rulings to individual taxpayers decreased by 30 percent. A bankruptcy aid program was eliminated, and the Chief Counsel’s office was denied a $10 million software purchase that would have eased document retrieval in litigation. “The IRS was recently sanctioned in court and ordered to reimburse a plaintiff $12,500 for the cost of depositions because it did not have the technical capability to produce appropriate documents for discovery,” GAO noted.

The auditors also faulted the IRS for its $3.2 billion information technology budget request for fiscal 2016, saying it used inaccurate data on investments and unclear definitions of terms such as “life-cycle cost” in its budget justification to appropriators. “As a result, Congress does not have accurate, reliable, and complete data on IT investments to inform its budget decisions or aid in its oversight,” GAO said.

The report was requested by Senate and House leaders of the Finance and Ways and Means panels, which have justified the budget cuts as punishment for alleged political bias in the IRS’s Exempt Organizations unit. Some lawmakers suggested the IRS should use its budget more flexibly to make up for cuts in customer service areas such as call centers that field taxpayer questions.

“While IRS cannot transfer resources from one appropriation account to another without specific statutory authority to do so, the agency still has some flexibility because fund centers may receive funds from more than one appropriation account,” GAO noted. In fiscal 2014, IRS transferred $416 million in funds from user fees collected from taxpayers needing special help and from return preparers subject to quality controls. The agency recently formed a new office and committee to inform budget formulation and execution.

President Obama in February requested a $2 billion hike in the IRS budget of $10.9 billion last year.

GAO credited the IRS with progress on most of 88 outstanding recommendations for improvements, notably its cost estimate on implementation of Obamacare.

Its new recommendations included asking the agency to add controls to make information on its IT investments more accurate. Agency managers agreed.

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