IRS budget cuts are good news for some with tax debts and bad news for others. If you want to resolve a tax debt quickly and move on with your life, IRS budget cuts can cause you a lot of headaches. If you are hoping to run out the clock on the IRS 10 year collection statute, IRS budget cuts may be just what the doctor ordered.
According to the Government Accountability Office, the Internal Revenue Service has absorbed about $900 million in budget cuts since 2009. Some of this came during the sequester in 2010, and some more recently as a result of targeting Republican donation cash machines.
And these IRS budget cuts have reduced revenue from audits and other sources. IRS Commissioner John Koskinen complained in an interview that the $500 million budget cuts that came from the sequester resulted in a drop in tax revenue of more than $2 billion. This means that the IRS has a return on investment of $4 to $1. For every $1 spent attacking taxpayers, it puts $4 in Obama’s war chest.
Another example from Koskinen indicates that collections from enforcement actions are down $4.3 billion from four years ago. “This decline in audit revenue is attributable to a decline in the number of returns audited,” he said.
While I certainly don’t wish an IRS audit upon my readers, many of you are negatively impacted by these budget cuts. Koskinen said that these IRS budget cuts have led to an “intolerable level of public service.” For example, 15.4 million telephone calls from taxpayers went unanswered last year. It’s tough to set up a payment plan when you can’t get an agent on the phone.
Of the callers that managed to get through to the automated voice prompts, the wait for service in 2013 was 14 minutes. Of these, only 67% of callers got to speak with someone. About one third either gave up or were disconnected.
Clearly, this is no way to run a business or a federal agency.
And how many of these lost calls and frustrated individuals were attempting to resolve their IRS tax debts? How many were hoping to get an installment agreement only to be turned away?
I can tell you from experience that these 14 minute wait times are not from the typical collection lines. They are an average of time spent on the inquiry line. I have phoned the collection line hundreds of times over the years and guesstimate the average wait time to be around 30 minutes. I’ve never waited less than 20 minutes and have enjoyed their hold music and message for as long as an hour and a half on behalf of my clients.
These long waits and frustrated taxpayers result in more collection action, more bank and wage levies being issued by computer, and extra interest and penalties being piled on your account. Even if you are trying to do the right thing, the IRS might just cut you off at the pass.
However, if you have positioned yourself out of the reach of the automated collection system, these delays and budget cuts can be good news. They mean longer waits for your case to be assigned to a revenue officer and an overworked agent too tired to focus on you. If you have only a few years remaining on your IRS collection statute, which is 10 years from the date of assessment, you might just be able to run out the clock on the mighty IRS.
If you do have only a few years left, this means that penalties have maxed out on your account and the only cost to you for the delay is a few percentage points of interest each year. Even if you have the cash to pay, you might just gamble on an inefficient IRS because of the recent and continuing budget cuts.
If you can afford to make monthly payments on your tax debt you will only pay until that collection period expires. If you have 24 months remaining when you setup an installment agreement at $1,000 per month, you will pay $24,000 and then get a fresh start. If your total IRS debt was $100,000, this is quite a discount… probably better than you would get in an Offer in Compromise.
Speaking of the IRS Offer in Compromise Program, OIC applicants are the ones most hurt by IRS budget cuts and slow response times. An OIC used to take about 4 months to process, and are now averaging around 1.5 years.
While your IRS OIC is pending, your collection statute is on hold. This means that, for the entire 1.5 years, plus a few months thereafter, you and your IRS debt are in limbo, just hoping for a fair shake. If you don’t get it, your clock starts again and all of that time was lost.
Of course, there is a positive for your IRS OIC being delayed: The Offer in Compromise delays the collection statute, but not the bankruptcy rules.
You are allowed to file a Chapter 13 bankruptcy 3 years from the date the tax return was due or 2 years from when the tax was assessed (when an audit becomes final or you file a late return). If the IRS is hot and heavy on you and your assets, and you eventually want to get in to bankruptcy, an OIC might give you the time you need to get your affairs in order.
So, there are some positives and a few negatives in the IRS budget cuts. I guess it all depends on where you are in the tax debt collection process.