IRS Gets Hammered in the 2014 Budget Agreement

By :: January 14th, 2014

The Internal Revenue Service is one of the biggest losers in the 2014 budget deal agreed to last night by House and Senate negotiators. Under the agreement, the service would get just $11.3 billion, which is $526 million below its 2013 budget and $1.7 billion less than President Obama requested.

According to the House Appropriations Committee, the funding level would be lower than agency spending in 2009. The agreement would also require the IRS to spend more time and energy reporting to Congress on a range of activities. And, to the surprise of no one, it prohibits the use of any funds to single out groups based on their ideological beliefs or “to target citizens for exercising their First Amendment rights.”

Those restrictions, of course, explain what this budget is really about: More political payback for the IRS’s bungled efforts to sort out which non-profits qualify for 501(c)(4) designation. While congressional Republicans tried mightily to pump up that episode into a major scandal, there is little evidence that the agency engaged in any nefarious political targeting. Rather, a combination of bad judgment and poor management resulted in the agency messing up a task for which it is singularly ill-suited--defining appropriate political speech.

If you like irony, you might keep in mind that the 501(c)(4) mess was caused in part by a lack of resources. The short-staffed agency was so overwhelmed by requests for tax-exempt status that poorly trained workers tried to shrink the backlog with what turned out to be clumsy shortcuts (word searches for “tea party,” "progressive," and the like). This will now get worse thanks to Congress and the new budget.  For a nice summary of the consequences of IRS budget cuts, check out the latest report of the Taxpayer Advocate.

In addition, by limiting the ability of the agency “to target citizens for exercising their First Amendment rights,” the spending bill could end up hamstringing IRS efforts to sort out the mess through a package of proposed regulations.  It could also open the door to political groups further stretching 501(c)(4) status to avoid public disclosure of their funders.

In case anybody missed the message, the agreement even included a $6 million thank-you gift for Treasury’s Inspector General for Tax Administration (TIGTA), the shop whose initial investigation led to last year's tea party firestorm. TIGTA got about $156 million—a boost from the $150 million requested by the Administration—even though its own probe turned out to be more than a little sloppy.

That Hill Republicans enthusiastically bashed the IRS was entirely expected. Sadly, neither congressional Democrats nor the White House seemed to have made much of an effort to defend the agency. In their haste to get a budget deal—any budget deal—nobody was prepared to take the blame for threatening another government shutdown to protect the IRS.

Even in the best of times, the agency has few friends on Capitol Hill or at the White House. If it cracks down too hard on fraud, it is accused of setting “jack-booted thugs” loose on innocents. If it eases up on enforcement, it is accused of being complicit in a massive tax gap that increases the budget deficit.

And that’s in good times. As the IRS, under the new leadership of Washington vet John Koskinen, attempts to dig its way out of a largely self-generated mess, this is clearly not the best of times.



  1. Michael Bindner  ::  3:25 am on January 15th, 2014:

    They, above all others, would most benefit from consumption taxes – especially if they were homogenized with a uniform federal-state tax base and left to the states to collect. Then they could concentrate on taxes on the very wealthy – who will demand more service if the IRS is under-funded. Ironically, probably the best way to get to such a reform is for Congress and others to keep bashing the IRS. The conservatives on their own don’t want a VAT or anything like it since evasion is less possible – especially by the rich who would have the government take its cut of the profits before they got theirs.

  2. Tax Roundup, 1/15/14: Serving society by shooting jaywalkers, sending billionaires to elementary school. « Roth & Company, P.C  ::  10:02 am on January 15th, 2014:

    […] Howard Gleckman, IRS Gets Hammered in the 2014 Budget Agreement (TaxVox): […]

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