IRS: Budget cuts could cause agency shutdown

Facing a new round of budget cuts, the IRS plans to delay information technology improvements, audit fewer taxpayers and send out refunds more slowly, the agency’s chief said Tuesday.

Even so, IRS Commissioner John Koskinen added that the agency still might have to shut down for two days this year.

Those changes are all on the table because of a $346 million cut in the IRS budget that will hurt both taxpayers and the tax system, Koskinen told staffers in an agency-wide email.

Republicans, furious over the IRS’s improper scrutiny of Tea Party groups, pushed to roll back the agency’s budget even further in the spending deal that lawmakers struck late last year. That, Koskinen says, essentially puts the agency on a 1998 funding level, when inflation is taken into account.

“This year we are looking at a situation where realistically we have no choice but to do less with less,” Koskinen told staffers, after warning for weeks that the budget cuts would force the agency’s hand.

Still, Koskinen said the decision to potentially shutter the agency for two days wasn’t taken lightly, and that such a move would only come after talks with the National Treasury Employees Union (NTEU). On days the IRS was closed, agency employees would be on unpaid furlough, but Koskinen said the IRS would try to limit the damage for taxpayers and tax professionals.

“Shutting down the IRS will be a last resort, but I want to be upfront with you about the problem,” Koskinen said in his message, which was obtained by The Hill.

“I know even a day’s worth of pay makes a huge difference in household budgets and family situations. While we will continue to do the best we can to avoid this action, the cuts in the budget are so deep that we may have no other choice.”

The IRS’s budget for fiscal 2015 is set at $10.9 billion, which Koskinen says amounts to a $600 million cut when counting employee raises and other mandated costs. The IRS chief also likes to point out the agency budget has been dropping since well before the Tea Party controversy — down more than $1 billion since 2010, and now at its lowest figure since 2008.

That latest funding decrease also comes as the agency is taking on more responsibilities, including a new role in enforcing the Affordable Care Act and implementing a law cracking down on offshore tax cheats.

On top of a potential shutdown, Koskinen also said Tuesday that the agency will have to hold off on $200 million worth of IT improvements, cut enforcement procedures by $160 million, slash spending on overtime and temporary staff by $160 million and continue a hiring freeze through the current fiscal year. 

The delays to infrastructure spending means the IRS won’t be able to implement new protections against identity theft, and that the agency’s current aging systems will continue to cause delays for taxpayers and staffers alike, Koskinen said. The IRS chief has said throughout his yearlong tenure that the agency’s IT systems are stuck in the 20th century.

“During this process, we tried to protect critical areas as much as we could,” Koskinen insisted.

“We will still work to deliver as smooth a filing season as possible. We will maintain IT systems critical to the filing season and tax enforcement. This commitment also includes providing appropriate training and technology support for you and your colleagues to help you do your job.”

Koskinen added that the cuts to enforcement — the loss of about 1,800 staffers and some 46,000 fewer audit closures for businesses and individuals — will amount to $2 billion in uncollected revenue, at a time when lawmakers are still searching for ways to cut into the deficit.

In all, the IRS will be unable to replace about 3,000 to 4,000 new employees, putting the agency down between 16,000 and 17,000 staffers since 2010.

Taxpayers, meanwhile, could have to wait an extra week or even longer to get their refund if they filed by paper. Fewer than half the taxpayers who try to call the IRS might get an answer, Koskinen said, after saying last month that a phone call was a 50-50 proposition.

Still, Koskinen can expect little sympathy from GOP lawmakers, who have accused the agency of showing blatant disregard for taxpayer dollars, and have called the latest round of cuts among their favorite parts of last year’s spending deal.

Colleen Kelley, the president of the NTEU, blasted Congress for the budget cuts in a Tuesday statement, but also suggested the union wouldn’t easily agree to potential furlough days for employees.

“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,” Kelley said. “Hard-working, committed IRS workers and their families should not be expected to bear the brunt of this budget shortfall.”