Texas Society of CPAs Supports Full IRS Funding

Dear Chairmen and Ranking Members:

On behalf of the 29,000 members of the Texas Society of Certified Public Accountants (TSCPA), we are writing to encourage your support for full funding of the Internal Revenue Service to help improve fiscal responsibility and fairness to taxpayers.

Supporting the full budget for the IRS is a matter of fiscal responsibility. While we understand the interest in cutting expenses to help balance the federal budget, we believe cuts to the IRS budget and the failure to adequately fund the IRS for a number of years has had, and will continue to have, the opposite effect. The result will be decreased revenue and failure to adequately service the taxpaying public. The IRS serves as the nation's tax collector. That service has historically been performed in a cost-effective manner as evidenced by the fact that the IRS collected about $2.42 trillion in 2011 with a budget of $12.1 billion.¹ The proposed IRS budget for fiscal 2013 (which includes an increase of $944.5 million over the previous funding authorized) includes $403 million in new enforcement initiatives, which are projected to raise nearly $1.5 billion in additional revenues for a 4.3-to-1 return on investment.²

We have experienced a significant "tax gap" estimated to be $385 billion in 2006.³ If the tax gap could be closed to a meaningful extent, revenues would increase dramatically, without the need for an increase in tax rates, elimination of deductions or credits, or cuts in important government programs. For example, if the 2006 gap figure referenced above had been closed, it would have paid for the recent $100 billion payroll tax cut extension almost four times. That gap cannot be closed if we don't provide the IRS with the financial resources to do so. Indeed, the current level of underfunding will exacerbate the tax gap.

An additional loss in revenue is likely to result from the reduction in the IRS' ability to provide taxpayer services. Less than half of the IRS budget is for investigations, examinations, collections, and regulatory activities.⁴ Since our system is one of self-assessment, equally important is the support the IRS renders to all taxpayers (and their representatives). In this context, the IRS develops forms and instructions, and responds to taxpayer inquiries. The vast majority of Americans are honest and willing to pay taxes that they correctly owe. However, due to the complex and constant changes of the tax law, the average taxpayer, and even those of us who are professionals, frequently need IRS guidance. The necessarily complex system generates much interaction between the IRS and taxpayers.

Unfortunately, taxpayers (and our TSCPA members) have seen this service decline in recent years, making it ever more time consuming, difficult and costly to file accurate returns and to resolve even those issues that should not generate conflict between the IRS and the taxpayer.⁵ To quote Colleen Kelley, National Treasury Employees Union president, "IRS employees know taxpayers need assistance and want to help, but long hold times result in dropped calls when taxpayers give up in frustration."⁶ She also added, "As the IRS workload continues to rise and the tax code becomes increasingly complex, staffing levels at the agency are 20 percent below what they were 15 years ago." Between 2004 and 2011, the portion of unanswered taxpayer telephone inquiries rose from 13 percent to 30 percent,⁷ hardly a level of service that Congress should want in applying its tax laws. Nina Olson, National Taxpayer Advocate has said, "The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut. This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers -- and at the same time reduces the IRS ability to deliver on its core mission of raising revenue."⁸

We're confident that our members endure this difficulty and get the right answer. But doing so under these circumstances raises the cost to our clients, and we expect many individuals who self-prepare merely give up out of frustration. Cutting the IRS budget will greatly intensify this issue and reduce the effectiveness of our self-assessment system. Taxpayers and practitioners expect competent and responsive IRS personnel. Long waits and dropped calls for telephone information, antiquated technology, delays in processing claims, and overworked personnel frustrate taxpayers (and professionals) and undermine respect for the tax law. These factors also inevitably cause greater work to stressed IRS employees and are counterproductive to efficient tax collection. However, we understand that no increase is allocated in the Administration 2013 budget for taxpayer service, an omission that we regard as a significant problem.

In addition to the loss in revenue, failure to properly fund the IRS introduces a fairness issue. To quote John F. Kennedy, "To the extent some people are dishonest or careless in their dealing with the government, the majority is forced to carry a heavier tax burden."⁹ An inability to properly enforce the law because of a lack of budget aggravates this problem and generates a general lack of respect for the ability of the IRS to discover someone who decides to "game the system" and a general perception of lack of fairness in the system. In her 2011 report to Congress, National Taxpayer Advocate Nina Olson said that the average household was assessed a "surtax" of about $2,680¹⁰ to enable the federal government to raise the same level of revenue it would have collected if all taxpayers had reported their income and paid their taxes in full. In fairness to our tax-compliant clients, we believe the IRS must have the resources to assure the highest level of compliance by all taxpayers.

We believe Nina Olson had it right when she stated in her annual report to Congress that the result of the lack of funding meant the IRS cannot adequately meet the needs of taxpayers and cannot adequately detect and address noncompliance and, as a result, cannot maximize revenue collection.¹¹

We thank you for considering the views of the Texas Society of CPAs. For the sake of fiscal responsibility and fairness to all taxpayers, we urge you to support the IRS budget at the level submitted by Treasury, plus an additional amount to properly fund taxpayer service. Without adequate funding, both taxpayers and the tax system will continue to suffer.

The Honorable Joe Barton, Texas Member of House

The Honorable Kevin Brady, Texas Member of House

The Honorable Michael C. Burgess, Texas Member of House

The Honorable Francisco R. Canseco, Texas Member of House

The Honorable John R. Carter, Texas Member of House

The Honorable Mike Conaway, Texas Member of House

The Honorable John Cornyn, Senator of Texas

The Honorable Henry Cuellar, Texas Member of House

The Honorable John Culberson, Texas Member of House

The Honorable David Dewhurst, Lieutenant Governor of Texas

The Honorable Lloyd Doggett, Texas Member of House

The Honorable Blake Farenthold, Texas Member of House

The Honorable Bill Flores, Texas Member of House

The Honorable Timothy F. Geithner, Secretary of the U.S. Department of the Treasury

The Honorable Louie Gohmert, Texas Member of House

The Honorable Charles A. Gonzalez, Texas Member of House

The Honorable Kay Granger, Texas Member of House

The Honorable Al Green, Texas Member of House

The Honorable Gene Green, Texas Member of House

The Honorable Ralph M. Hall, Texas Member of House

The Honorable Ruben Hinojosa, Texas Member of House

The Honorable Jeb Hensarling, Texas Member of House

The Honorable Kay Bailey Hutchison, Senator of Texas

The Honorable Sheila Jackson Lee, Texas Member of House

The Honorable Eddie Bernice Johnson, Texas Member of House

The Honorable Sam Johnson, Texas Member of House

The Honorable Kenny Marchant, Texas Member of House

The Honorable Michael McCaul, Texas Member of House

The Honorable Emily McMahon, Acting Assistant Treasury Secretary for Tax Policy

The Honorable Randy Neugebauer, Texas Member of House

The Honorable Nina E. Olson, National Taxpayer Advocate, Taxpayer Advocate Service

The Honorable Pete Olson, Texas Member of House

The Honorable Ron Paul, Texas Member of House

The Honorable Rick Perry, Governor of Texas

The Honorable Ted Poe, Texas Member of House

The Honorable Silvestre Reyes, Texas Member of House

The Honorable Pete Sessions, Texas Member of House

The Honorable Douglas Shulman, Commissioner of Internal Revenue Service

The Honorable Lamar Smith, Texas Member of House

The Honorable Joe Straus, Speaker of the Texas House of Representatives

The Honorable Mac Thornberry, Texas Member of House

Tax Notes

² FS-2012-10, IRS FY 2013 Budget Proposal Summary (February 2012), Internet.

³ FS-2012-6, IRS Releases 2006 Tax Gap Estimates (January 2012), Internet.

⁴ Tax Analysts, "Obama Budget Proposes Almost $1 Billion More for IRS" (February 14, 2012), Internet.

⁵ FOXBusiness, "The IRS Budget: What it Means for Taxpayers" (March 1, 2012), Internet.

⁶ Ibid, Tax Analysts.

⁷ National Taxpayer Advocate's 2011 Annual Report to Congress Executive Summary: Preface & Highlights (December 31, 2011), 2, from FY 2004 to FY 2011, the percentage of calls the IRS answered from taxpayers seeking to speak with a telephone assistor dropped from 87 percent to 70 percent, Internet.

⁸ Ibid, IR-2012-6.

⁹ Transcript of speech, "President Kennedy Appeals to the Congress for a Tax Cut" (April 20, 1961), Internet.

¹⁰ Ibid, NTA 2011 Annual Report to Congress, Most Serious Problems, 11, Internet.

¹¹ Ibid, 3, Internet.