TIGTA Releases Report Detailing Compliance Trends

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TIGTA released its annual report detailing trends in compliance activities, with the current report covering FY 2013. The report details the unfortunate juxtaposition of a significant decline in resources with a hefty increase in IRS responsibilities, such as the Affordable Care Act and FATCA. The report’s discussion of IRS’s 7.4% decrease in its budget from FY 2010 to FY 2013 ($12.1 billion to $11.2 billion) follows up nicely on Mike Desmond’s excellent post yesterday on Circular 230, where he links in the Service’s expanded reliance on Circular 230 with its general resource constraints.

Here are some of the high and lowlights from the report.

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Exam

Examination function conducted 6 percent fewer examinations in FY 2013 than in FY 2012. The decline in examinations occurred across all tax return types, including individual, corporation, S corporation, and partnership.

The report details the decline across return types, and notes that the vast majority (70%) of return examinations were conducted via correspondence. There is lots of detail in the report relating to the lack of Exam resources, including how the lack of new hires is contributing to the decline in audit coverage. For example, the report discusses how from FYs 2010 to 2013, the number of revenue agents decreased 19 percent (from 11,648 to 9,451). In addition, tax compliance officers decreased 25 percent (from 1,390 to 1,045).

Revenues

On the bright side total revenues collected bumped up to $2.9 trillion, a 13% increase from the prior year, and enforcement revenue collected also increased from $50.2 billion in FY 2012 to $53.3 billion in FY 2013, though TIGTA describes that increase as due “in part, to several large Appeals case settlements.”

Tax Return Filings

Tax return filings are at their highest ever: Tax return filings increased by more than 3.1 million in FY 2013, from 186.7 million in FY 2012 to 189.9 million in FY 2013. E-filing is at about 73%, up from 71% in the prior year.

Enforcement Revenues

The report presents some positives and some negatives:

Enforcement revenue collected increased $3.2 billion(6 percent) from $50.2 billion in FY 2012 to $53.3 billion in FY 2013. Despite the increase, enforcement revenue for FY 2013 was less than the enforcement revenue collected during two of the past four fiscal years. Furthermore, $2.6 billion (81 percent) of the $3.2 billion increase in FY 2013 was due to a number of cases in appeals or litigation that were worked in prior years. The portion of enforcement revenue collected attributed to the Collection program increased by more than 3 percent, from $30.4 billion in FY 2012 to $31.4 billion in FY 2013. However, the Examination program’s portion of enforcement revenue collected decreased by almost 4 percent, from $10.2 billion in FY 2012 to $9.8 billion in FY 2013, which is the lowest amount in the past five years.

Notice of Federal Tax Lien Filings, Levies and Seizures

Enforced collection actions are significantly down. According to the report, “the use of NFTLs, levies, and seizures all decreased in FY 2013.The overall use of NFTLs decreased 15 percent in FY 2013, with NFTLs filed by the ACS and the Field decreasing 17 percent and 14 percent, respectively. This represents the fewest number of NFTLs filed since FY 2005.”

TIGTA detailed the decline in levies as well:

The IRS’s use of levies has also decreased for the second straight year. Total levies issued in FY 2013 decreased by more than 37 percent from almost 3 million to approximately 1.9 million. The number of levies issued by the ACS declined 46 percent to 1.2 million in FY 2013. The Field also decreased its use of levies, from 714,000 to 639,000 (11 percent).

In addition, seizures are down 25% and are at anemic levels, with only 547 last year, the lowest since 2005.

Some Parting Thoughts

If Congress does not improve the IRS budget, the enforcement stats will just continue declining.  The report also does not show other collateral actions the IRS is having to take because of the cut off in funds, as Mike Desmond’s post on Circular 230 persuasively discussed yesterday. There are countless other collateral issues relating to the funding shortfall,  such as Chief Counsel attorneys no longer handling bankruptcy cases because of a lack of funding.  That will have an impact on compliance because the job has now been thrown back to DOJ/US Attorneys who gladly passed the task to Chief Counsel’s office about three decades ago because of their own staffing issues which have not gotten better. There are many other areas where we can point to customer service cutbacks stemming from resource constraints.

The IRS went through a significant decline during the Clinton years as he balanced the budget by cutting federal employment at all levels.  He was also riding a productivity wave that is not being matched during the current cuts.  When you have prolonged failure to hire as is how happening for the second time in 20 years you create big gaps in knowledge as people clear out of the system.  You also make it very difficult when hiring starts again because the training of the new people takes the old workers off line even further.  It is a bad game made worse by the fact that these workers could actually reduce the federal deficit rather than increase it.  Congress, to the extent it is making a knowing decision, is making one that hurts the country and promotes non-compliance.

 

 

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Bob Kamman says

    And then you read Tax Court decisions like the one today about IRS harassing a tenured art professor who regularly sells her paintings for prices up to $75,000 — how many lawyers does it take to hire quick-and-dirty expert witnesses and claim that she is not conducting a trade or business? (Admittedly, some of the expenses should be disallowed by Exam. But that does not require a 55-page preamble in a bifurcated proceeding.)

    If IRS pursued tax law professors with such zeal, I wonder if it would change some minds on whether the problem is lack of resources, or waste of resources.

  2. The case Bob speaks of is Crile v Commissioner.
    https://www.ustaxcourt.gov/InOpHistoric/CrileMemo.Lauber.TCM.WPD.pdf
    Challenging the artist’s activities under 183 seems silly, in light of Crile’s career, with her work in museums, many sales and placings in galleries etc. Drawing the line between 262 personal expenses and 162 expenses is tricky in these cases and the IRS would have been better served had it spent its time on that part of the case. I agree the time/resources spent on the 183 issue is hard to justify.

  3. Bob Kamman says

    It appears silly to us; it looks somewhat less like IRS silliness and more like an ISIS knife to the taxpayer who had to deal with it. Calling her academic productivity a hobby would include all sales in gross income but limit deductions to those allowed on Schedule A, subject to the 2% limitation and AMT rules.

    Cases in which IRS is willing to devote vast taxpayer-funded resources to the pursuit of bullying are like cockroaches. When you spot one of them, you know there are many more unseen.

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