Internal Revenue Service’s Proposed Budget Reveals Enforcement Priorities for FY2014

On April 10, the President released his budget for FY2014.  As part of that budget, the Internal Revenue Service is seeking an appropriation of $12.9 billion, an increase of over $1 billion, or 8.84%, from the FY2012 enacted level. 

On the enforcement front, the FY2014 request provides funding for a number of initiatives, including prevention of fraud and identity theft, addressing offshore tax evasion, utilizing new information reporting requirements to reduce underreporting, strengthening examination and collection activities, expanding enforcement efforts among corporate and high-wealth taxpayers, and strengthing return preparer compliance. 

The FY2014 budget request specifically includes funding for implementation of the Foreign Account Tax Compliance Act (FATCA), the implementation of which is gradually phasing in.  Specifically, the request seeks funding of $35 million to hire 233 new FTE’s to implement FATCA.  According to the budget request, FATCA will produce additional annual enforcement revenue of $115 million by FY2016.

The IRS budget request also seeks $49 million in new funding to hire 329 FTE’s to address international and offshore compliance issues.  This particular initiative, if funded, is expected to generate additional annual enforcement revenue of $193 million by FY2016.

On the examination front, the IRS seeks an increase of $111 million to hire 797 FTE’s to handle audits of individual and entity taxpayers.  This funding increase will restore examination resources to prior levels and will allow the IRS to increase staffing levels in traditional field examinations, expand correspondence audits, increase voluntary compliance of tax exempt organizations, and address an increasing Appeals workload.  This funding level, if approved, is estimated to generate annual enforcement revenue of $295 million by FY 2016.

Another enforcement priority addressed in the FY2016 budget request is audits of high-wealth individuals.  Several years ago, the IRS established a special unit — dubbed the “wealth squad” — to focus on audits of high net worth individuals.  The IRS seeks additional funding of $34 million (to hire 242 FTE’s) in order to continue its focus on the wealthiest taxpayers.  In its budget request, the IRS states that it increased “high income audits” by 2.6 percent from FY2011 to FY2012.  (Note, however, that in a prior post, I noted that audit rates for wealthy taxpayers have actually decreased slightly.)

The FY2014 also seeks to strengthen another IRS priority:  tax return preparer compliance.  The IRS states that this compliance initiative — which started in 2009 — is “core to the IRS tax gap strategy” and seeks $18 million in new funding to hire 124 FTE’s to carry out this effort.

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