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IRS Cuts Affect Tax Refunds and Audits

As we file 2014 individual tax returns and pay federal income taxes, it’s hard to imagine the IRS having on-going budget troubles. Yet, IRS Commissioner John Koskinen is requesting an additional $2 billion to keep up with service requests, timely refunds and enforcement actions such as tax audits on individuals and businesses.

1040 form with glasses and penniesIn a previous edition of The ReSource, we have given details of the delays and complaints associated with the decline in IRS customer service responses as the IRS has cut its staff and switched to more automated systems.  Now, political payback is cutting deep as the agency faces ongoing heat for mixing politics with taxes due to allegations of targeting conservative groups and paying for expensive “training” retreats.

Last month, Congress approved a $10.9 billion budget for the IRS for fiscal year 2015, which ends in June.  It is the lowest level of funding for the embattled agency since 2008 with total budget amounts declining $1.2 Billion in the last 5 years. 

Whether a taxpayer thinks there should be more or less of the IRS, the budget push-me-pull-you debate is affecting the taxpayer’s experience in a number of ways.  Commissioner Koskinen describes it as “changes” in how the IRS will do business with taxpayers this tax season.

Here are some of the issues that may impact you directly:

Refund Delays:  Nearly 8 out of 10 tax filers receive a federal tax refund. The average amount paid is close to $2,800, according to the most recent filing statistics.  Refunds from electronically filed returns are usually processed in about 3 weeks, but the IRS warns staff cutbacks have increased processing time up to an average of 5 weeks. Taxpayers who file paper returns are now being told their refund check might not be processed for 7 weeks.

Audit Declines:  The number of audits in 2014 declined 6% overall from the previous year while experts cannot agree on what the audit numbers will be in 2015.  The audit predictions range from roughly 1% to 6% of total individual and business tax returns. 

Some taxpayers may be relieved that the risk of being audited has decreased slightly, but the conclusions are based on the percent of audits compared to the number of tax returns filed.  More fraudulent tax returns are being filed each year due to tax-related identity theft.  Fewer audits may mean it will be more difficult to detect this kind of tax fraud just as new enforcement agencies are gaining steam.

Audit Hassles: Even though last year’s audit numbers report a decline, taxpayers complain they are receiving more correspondence audits, which are computer-generated letters triggered by an automated tax form-matching program.  The correspondence letters request timely answers, but there are mounting frustrations due to the inability to connect with a “live” IRS auditor.

Hiring Freeze:  IRS officials say budget cutbacks and the resulting hiring freeze will result in nearly 4,000 fewer full-time employees at the agency by the end of June.  When those numbers are added to the headcount losses in the last 6 years, the IRS has lost nearly 17,000 full-time workers.

Less Taxpayer Help:  Officials’ statements warn that fewer than half the taxpayers that call the agency for help will be able to get through to an actual person.

Technology Timing:  Updates that were in line for streamlining IRS internal and processing systems are being delayed to avoid taking up staff time for training and testing the new systems.  Among the updates included the latest taxpayer protection tools against identity theft.

Possible Shutdown:  Commissioner Koskinen says the agency may implement a money-saving temporary shutdown as a last resort.  To minimize disruptions, he says the agency may close for two days after the main tax-filing season, possibly in May or June.

The best taxpayer defense is to make certain your federal income tax return and necessary documentation is mistake-free to avoid audits and delays. 

If you have questions about how the IRS cuts may affect your federal income tax filing, contact us at McRuer CPAs for more information.


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