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Proposal to further slash IRS budget could mean fewer audits

In recent years, the IRS has been forced to operate with a significantly lower budget. Since 2010, IRS funding has been cut by nearly $1 billion. And, after a recent meeting of the House Appropriations Committee, everyone's favorite tax collection agency could be on the chopping block once again.

On June 25, a bill was approved in the House Appropriations Committee that, if it becomes law, will slash the budget of the IRS by an additional three percent. The bulk of the cuts are in business systems modernization and operations. But, enforcement spending would also shrink by one percent.

IRS call service has already reached abysmal levels. Ten years ago in 2004, the agency answered 87 percent of calls. Last year, 40 percent of ringing phones at the IRS went unanswered. If funding is maintained at current levels, the IRS says that the phone service level could drop to 50 percent.

Despite the cuts, the IRS claims that it will be able to increase voluntary compliance rates. Less than one percent of individual tax returns will be audited by the IRS next year, but with more technologically advanced enforcement tools at the disposal of the IRS, the agency is becoming less reliant on high numbers of audits.

Despite the IRS budget troubles, you should not get too confident in your ability to avoid an audit. While audit levels remain at historically low levels, these days, IRS audits are more targeted. With new tools in place, like a law that requires offshore banking institutions to provide the IRS with information about American account holders, it is easier for the IRS to find the right individuals to audit. If you are being audited, remember that a comprehensive legal defense is critical to resolving your tax dispute in the most favorable manner possible.

Source: Forbes, "IRS Strategic Plan Highlights Effects Of Budget Cuts," Jeremy Scott, July 2, 2014

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