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How proposed budget cuts will affect IRS collections

We have been closely following how and when the IRS and Department of State may start to revoke or deny passports for tax debt. Facing the prospect of further budget cuts, how will overall IRS collection activities be affected?

The number of people employed at the agency has plummeted 31 percent over the last two decades. For an agency that brings in 92 percent of the federal revenue, these cuts have limited its ability to invest in new technology and complete the same number of audits and investigations.

Forbes reports that the president's proposed budget would cut the IRS budget by another $239 million.

These cuts come as the IRS is tasked with more duties from administering parts of the Affordable Care Act to working with the State Department to revoke passports for "seriously delinquent" back taxes. The agency also oversees offshore account compliance (FBARs) and has a criminal investigations (CI) team that investigates financial crimes from tax preparer fraud to bank structuring.

Are unfunded priorities really priorities?

For the agency, the proposed budget reduction could have been worse. Secretary of Treasury Steven Mnuchin has advocated for the agency.

The IRS has an efficient record in that it collects $100 for every 35 cents invested. This is much higher than most other countries. The concept of "we add people, we add money" has received more attention, but still not the needed funding.

The agency receives 125 returns every second during tax filing season. It needs to invest in systems to process this huge amount of data and keep sensitive information safe. Modernizing technology is a purported administration priority, but another unfunded one.

When it comes to resolving back tax debt quickly when a passport hangs in the balance, the staffing shortages could cause delays. Processing the release of a lien in order to sell a property could be slower. And IRS agents may try to squeeze more from each audit. In this current environment, it is important to involve an experienced tax attorney to identify the best possible strategy forward.

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