Extra Funding Leads to Layoffs at IRS

On the heels of winning extra funding for enforcement and taxpayer services from a Senate panel last week, the New York Times is reporting that nearly half of the lawyers responsible for auditing the tax returns of wealthy American taxpayers may be losing their jobs.

The Senate Appropriations Committee has voted unanimously to approve a 2007 fiscal year budget of $10.7 billion for the Internal Revenue Service (IRS). The IRS budget is part on a larger $69 billion bill funding the Treasury, Judiciary, Transportation and Housing and Urban Development departments beginning October 1. A floor vote has not been scheduled.

The budget approved by the senate committee is $64.1 million more than the Bush administration requested, however, the $2.1 billion earmarked for taxpayer services is actually $30.8 million less than the White House requested, according to MarketWatch.

The $4.8 billion slated for enforcement represents an increase of $95.2 million over the 2006 budget. The Senate funding is also more generous than the $10.59 billion approved by the House, which cuts funding another $104.5 million from the administration’s proposed budget.

MarketWatch reports that the enforcement funds approved by the Senate committee are intended to “give the IRS tools to help close the $290 billion tax gap”. To do this, $245 million has been designated for the IRS’ Business Systems Modernization program. It also requires the IRS to develop a strategic plan for reducing the tax gap and boosting voluntary compliance to 85 percent by 2009.

Despite the approval and emphasis on enforcement, Kevin Brown, an IRS deputy commissioner, confirmed to the New York Times that the administration plans eliminate the jobs of almost half (157 out of 345) of the agency’s estate tax lawyers and 17 support staff positions within 70 days. Estate tax lawyers are among the most productive enforcement personnel, finding $2,200 in taxes owed to the government for every hour worked, according to the New York Times.

Six estate tax lawyers whose jobs are likely to be eliminated told the New York Times in interviews that the job cuts were only the latest behind the scenes moves made by the administration to limit the effectiveness of the estate tax and shield politically connected individuals, as well as those utilizing complex tax avoidance devices from being audited.

Brown, however, justified the cuts, explaining to the New York Times that 10 percent of estate audits generated 80 percent of the additional taxes and calling the idea that the IRS is soft of rich tax payers “preposterous”. The money saved by eliminating the jobs of estate tax lawyers, whom civil service rules bar from moving to audit income taxes, would be used to add to the staff auditing income tax returns, Brown told the New York Times.

The New York Times reports that IRS and Treasury officials have repeatedly told Congress that tax “cheating among the highest-income Americans is a major and growing problem” during the past five years. Six years ago, the IRS stated that more taxes were owed on 85 percent of the large gifts audited, according to the New York Times.

Calls requesting comment from members of the Senate Committee on Appropriations and the Subcommittee on Taxation and IRS Oversight were not returned Sunday. The Subcommittee meets next on Wednesday, July 26 at 2 p.m. Eastern for hearings on the size and sources of the tax gap.

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