By Sean McCalley
Federal News Radio

Employees of the Internal Revenue Service should plan for a possible agency shutdown, warned IRS Commissioner John Koskinen in an e-mail to the entire agency yesterday.

In a message titled “Budget Update: Tough Choices”, Koskinen laid out the details of a stark budget reality facing IRS financial planners. He said employee furloughs may be the only option for dealing with a budget shortfall — a shortfall that comes on top of multiple program cuts and reduced working hours. Koskinen said he expects the potential furloughs to last for two days, and will occur later in the fiscal year.

“Shutting down the IRS will be a last resort, but I want to be upfront with you about the problem,” wrote Koskinen.

The “tough choices” stem from the budget Congress passed at the end of December to fund the entire federal government, except the Homeland Security Department. Congress approved a $10.9 billion budget for the IRS, which adds up to about a $346 million cut for the next nine months, said Koskinen. But that really adds up to $600 million, he said, after factoring for inflation and an extra $250 million in other mandated cuts.

It’s the lowest funding level since 1998, if adjusted for inflation, said Koskinen.

The IRS will most likely announce furlough plans by the end of the summer. Exact timing will depend on two factors: How long it takes the IRS to decide whether or not furloughs are the only option, and announcing the decision early enough to allow employees to prepare.

“It’s a balancing act,” said Koskinen in a conference call Thursday. “What we don’t want to do is take a shutdown day, and then discover later in the year that things worked out in such a way that we didn’t have to do it.”

Workforce reductions

Besides furloughs, the IRS will have to slash overtime pay and working hours for temporary employees. The agency has to scale back those two areas enough to save $180 million, said Koskinen. He also said the agency has to reduce its tax enforcement budget by $160 million.

That alone means the federal government will miss collecting at least $2 billion in revenue, wrote Koskinen. The reasons for that are many: 46,000 fewer audit closures for individuals and businesses, and 280,000 Automated Collection System and Field Collection case closures.

It also means a continued tax enforcement hiring freeze, which he said will cause the IRS to lose 1,800 tax enforcement personnel through attrition by the end of the fiscal year in October.

The cuts to overtime hours and temporary employment opportunities will directly affect the taxpayer, wrote Koskinen. He expects some people to wait at least an extra week to receive their tax returns. The agency will be slow to respond to filing errors or questions from the public and predicts about half of taxpayers who call the agency for help will never reach an IRS employee.

And the problems could grow substantially worse as the IRS is forced to maintain an overall hiring freeze through the end of FY 2015. The agency will probably lose between 3,000 to 4,000 full-time employees this year. That’s a total staffing loss of 16,000 to 17,000 employees in the last five years, said Koskinen. Since Congress passed the new budget, he said his agency worked with the National Treasury Employees Union to navigate their bargaining agreement and plan for the worst.

“I have urged the IRS not to make any decisions on furlough days this early in the fiscal year and to work with us to find other alternatives,” wrote NTEU president Colleen Kelley in response to Koskinen’s message.

A report from National Taxpayer Advocate Nina Olson underscores the concerns of both Koskinen and the NTEU. Olson called these “the worst levels of taxpayer service” in more than a decade, and she pointed out in a report the IRS workforce will shrink by 17,000 people, while the number of American taxpayers will increase by 7 million this year.

Workforce reductions aside, Koskinen wrote the agency also has to curb major IT investments to save $200 million. The bottom line: Further reductions in taxpayer service, fewer business opportunities for contractors, and delays in major cost- saving programs, he said.

Among the IT budget casualties are new taxpayer protections against identity theft. The Taxpayer Advocate Service has to wait for a new case management system to oversee taxpayer hardship cases. Plans to move the agency towards a shared cloud infrastructure are on hold, too, which reduces the agency’s data center space.

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