If you’re thinking about committing tax fraud — or stealing some personal taxpayer information — now may be the time to do it.
Internal Revenue Service Commissioner John Koskinen told an audience at the National Press Club March 24, that without adequate funding and a renewed hiring authority from Congress, the IRS is going to remain understaffed, less vigilant against tax fraud and at a higher risk of cyber attack.
“Ultimately, continued underfunding of the IRS threatens to erode its effectiveness,” Koskinen said. “My concern is that we’re getting dangerously close to that point.”
“It’s important for people to understand that our goal isn’t to get enough funding to perform the way we used to,” he added. “We are not going to build the IRS back to where it was in 2010, although it’s clear we do need more staff. We need to be looking forward to a new improved way of doing business.”
Building on a partnership
Even while it waits for Congress’ final determination on an enacted budget — the agency has requested $12.3 billion for fiscal 2017 — the IRS is working to address issues of cybersecurity.
Koskinen said the IRS for the first time is more quickly working with the private sector and states to share information about suspicious patterns of tax filing activity.
“We’re not sharing information about particular taxpayers, we are collecting information and sharing information about patterns of filing, suspicious concerns that we have, and we do that regularly now in a way that we’ve never done before,” Koskinen said. “It’s important for us to continue to improve our filters and our systems. It’s important for us to build upon that partnership.”
Koskinen said additional funding is needed because while the agency has improved its response to cyber threats, it needs to be able to anticipate where criminals are going to attack next.
Koskinen also urged Congress in his speech to renew a special hiring authority called “streamlined critical pay authority,” which was used to hire IT experts “to help modernize the IRS’ aging technology.”
It expired in fiscal 2013.
“The loss of that authority seriously harms our ability to recruit the best IT and cybersecurity talent out there,” Koskinen said. “This has real-world implications for the IRS, which has one of the largest and most sensitive databases in the world.”
A shrinking workforce
Additional funding from Congress would also help to close workforce gaps and address taxpayer compliance.
The fiscal 2016 budget is about $900 million lower than it was in 2010, and that has led to the shrinking IRS workforce, Koskinen said. By the end of this year, the agency is expected to lose between 2,000 and 3,000 full-time employees, contributing to a total of 17,000 lost since 2010.
“The portion of our full-time workforce that has been lost since 2010 includes over 5,000 key enforcement personnel,” Koskinen said. “These are the people who audit returns and perform collection activities, as well as the special agents in our Criminal Investigation division who investigate stolen identify refund fraud and other tax-related crimes.”
Last year, the IRS completed the lowest number of audits in 10 years, and the agency’s audit coverage rate in 2015 was the lowest since 2004, Koskinen said. That decline in audits and coverage rate has contributed to about $5 billion lost per year in enforcement revenue, Koskinen said.
“In weakening our compliance programs, these cuts also create risk for our system of voluntary compliance,” Koskinen said, adding that a 1 percent drop in compliance rate translates to a revenue loss for the IRS of more than $30 billion per year.
Koskinen said the IRS will continue to work on making the agency and filing process more accessible and safer for taxpayers who want to do their business online, but also providing reliable service for those who prefer in-person or help via phone.
“Improving the online experience for those who want to deal with us that way will free up resources to make it easier for those who want to call us or visit us in person to get help,” Koskinen said.
By the numbers
Koskinen acknowledged that for most people, their only interaction with the IRS is when they file their taxes.
“To the average person, the IRS may seem almost like a vending machine: Put your return in, push a button and out pops your refund,” Koskinen said. “What I’ve been trying to remind Congress and the public for the last two years is that it’s a lot more complicated than that.”
Crunching numbers for the audience, Koskinen said it costs the IRS about 35 cents to collect $100.
“If Congress were to give just the $1 billion increase requested in the President’s budget proposal for fiscal year 2017, that means we’d be able to do more,” Koskinen said. “If Congress were to fund the President’s budget, we estimate that the enforcement improvements we have planned would yield $64 billion over the 10-year budget window that’s commonly used. That would average out to about $6 billion a year.”
That’s $6 billion to help the government fund things like military benefits for veterans, maintaining highways and protecting national parks.
“When we do get funding,” Koskinen said, “I want to emphasize the IRS will put it to good use.”
IRS Commissioner John Koskinen/AP/Manuel Balce Ceneta
IRS slows down tax return processing to address fraud