Recently the IRS Commissioner sent an email warning his employees of the budget cuts and how they would play out for taxpayers this tax season. Many taxpayers may not know that Congress cut about $346 million from the IRS budget.
Here are four areas where the cuts will affect taxpayers:
1. Delays to critical IT investments of more than $200 million. Impact: This will hurt taxpayer service and cost-efficiency efforts as well as reduce outside contractor support for critical projects.
o This means that new taxpayer protections against identity theft will be delayed.
o The Taxpayer Advocate Service won't be able to obtain a new case management system to oversee taxpayer hardship cases.
o Aging IT systems will not be replaced, increasing the risk of downtime that affects taxpayer service and your ability to work effectively.
o We will not be able to invest upfront money to gain future operational savings, such as moving to a shared cloud infrastructure and reducing data center space.
2. Enforcement cuts of more than $160 million. Impact:
o Fewer audit and collection cases. Reduced staffing in enforcement will result in at least 46,000 fewer individual and business audit closures and more than 280,000 fewer Automated Collection System and Field Collection case closures
o As a result of the hiring freeze, we will lose about 1,800 enforcement personnel through attrition during FY 2015.
o The reduced enforcement staffing for just FY 2015 means the government will lose at least $2 billion in revenue that otherwise would have been collected.
3. Cuts in overtime and temporary staff hours by more than $180 million. Impact:
o Delays in refunds for some taxpayers. People who file paper tax returns could wait an extra week - or possibly longer - to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.
o Increasing correspondence inventories. We realize there will be growing inventories in Accounts Management, and taxpayer correspondence will face lengthy delays.
o Taxpayer service diminished further over the phone and in person. We now anticipate an even lower level of telephone service than before, which raises the real possibility that fewer than half of taxpayers trying to call us will actually reach us. During Fiscal Year 2014, 64 percent were able to get through. Those who do reach us will face extended wait times that are unacceptable to all of us.
4. Extending the hiring freeze through FY 2015. Impact:
As a result of the hiring freeze and assuming normal attrition rates, we expect to lose between 3,000 and 4,000 additional full-time employees. The total reduction in full-time staffing between FY 2010 and FY 2015 is expected to be between 16,000 and 17,000.
These cuts coupled with the increase in tax laws (and possibly tax increases) due to the ACA, will make for a memorable tax season for sure.
Happy New Year! With the holiday season in the rearview mirror, it is now time for the most wonderful time of the year - Tax Season. With the New Year still "new", now is the time to start thinking about not only tax preparation, but also tax planning. To do that, let's take a look at some past tax years to bring us up to speed. 2013 was a big year for taxes. Congress passed legislation averting the so-called "fiscal cliff," and many of the "Obamacare" changes took effect. While few of us who watched the process would consider it Washington's finest hour, we at least had answers to many of the questions that had made proactive planning more difficult over the past few years.
What a difference a year makes! 2014 started off with partisan bickering, and ended with even more gridlock. It took Congress until December 16 to pass "tax extender" legislation, reinstating tax breaks that expired all the way back on January 1. (Those same provisions expire on January 1, 2015 -- meaning Congress will have to do it all over again next year!) About the only thing they could actually agree on was cutting the IRS budget back to pre-2009 levels, which will only make the taxation bureaucracy even harder to navigate.
President Obama and Congressional leaders have said that corporate tax reform is "on the table" for the final two years of the current administration. However, amid the continuing partisan wrangling over the budget, and the approaching 2016 election, there appears to be little appetite on Capitol Hill for significant changes to the personal tax rules.
If you would like to get more information on the small business changes that will affect your tax situation, be sure to stop by our small business tax seminar on Jan. 20th. We will review what all the "tax extender" legislation has to do with your small business and more so that you can make proactive tax planning decisions now.