House Guts IRS Tax Enforcement Budget; Nonprofit Sector Silence Is Deafening

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Well, there you have it! A case study in petty legislative brainlessness, conjured by the U.S. House of Representatives. Yes, we’re bitter here at NPQ, because we predicted that this would be one of the outcomes of the Lois Lerner/Tea Party/501(c)(4) scandal at the Internal Revenue Service. Rather than putting needed resources into the IRS so that it would have the staffing—capable, trained, and hopefully competently led—to do the job of oversight of tax-exempt entities, the House seemed to have had a conniption this week and chose to punish the IRS by cutting its tax enforcement division by $1.2 billion, a cut of 25 percent. Overall, that is a cut of 13 percent in the entire budget of the IRS and a funding level 21 percent below what the Obama administration had requested.

That’s just brilliant, House members! As the AP described the House’s thinking, “The cuts reflect GOP outrage over the agency’s scrutiny of tea party groups seeking tax-exempt status and frustration over the agency’s failure to produce thousands of emails by Lois Lerner, the official formerly in charge of the IRS division that processes applications for tax-exempt status.”

Rep. Paul Gosar (R-AZ) introduced a bill to cut the IRS tax enforcement budget by $353 million as punishment for its efforts “to harass, target, intimidate and threaten lawful, honest citizens,” and Rep. Bill Huizenga, (R-MI) tacked on an amendment to cut another $788 million on top of a $72 million cut that was already in the original budget bill. Amazingly, Rep. Dave Camp (R-MI), the chair of the House Ways and Means Committee, even took to the floor to slash another $2 million. Given his committee’s role in, supposedly, boosting the capacity of the IRS to do its job, Camp’s action is unfathomable.

Gosar, Huizinga, and inexplicably Camp may have punished the IRS, but in doing so, they’ve benefitted the nation’s top one percent, who already face minimal chances of ever facing a tax audit. Just short of 11 percent of taxpayers earning $1 million or more were audited in the most recent tax year, the lowest rate since 2010, but a 25 percent budget cut in the tax enforcement division ensures that that rate will drop even further. Call this IRS budget “the tax cheats budget,” because the resulting gutting of tax enforcement will make it easier for tax cheats to escape scrutiny.

Here is Huizinga’s articulated rationale for the cuts in the IRS tax enforcement division:

“The IRS has been targeting American taxpayers based on their political beliefs for the past four or five years. During this period, a culture of shading the truth was fostered and developed by directors and administrators throughout the IRS. Now, this culture within the IRS has grown into one of stonewalling, double talk and mistrust…It is up to Congress to use the power of the purse to rein in the IRS and force them to conduct their analysis in an unbiased manner.”

Maybe someone could explain to Representative Huizinga the logical problems in his action. By gutting the tax enforcement division, Huizinga and his colleagues have done nothing to address what he believes to be political targeting and a culture of stonewalling and doubletalk. What the House has done is made the IRS less capable of doing its job when it is already challenged to carry out its ongoing work plus the new tasks that it was given through legislation passed by Congress such as the IRS role in the Affordable Care Act and its functions vis-à-vis Wall Street banks.

The White House, for its part, has promised to veto the House bill. More than likely, the Senate has other ideas for the IRS. But there is plenty more in the House legislation for financial services and general appropriations that the White House finds objectionable beyond the IRS cuts, including a proposed $300 million cut in the budget of the Securities and Exchange Commission and a plan to make the Dodd-Frank-created Consumer Financial Protection Bureau (CFPB) subject to the annual appropriations process that “would weaken the agency’s essential independence,” both strongly criticized in a statement from the White House issued on July 14th. Those cuts seem geared to helping potential Wall Street cheaters evade regulatory oversight.

And how might this cut affect the Tax-Exempt unit of the IRS? Already in administrative chaos in the wake of the Lerner issues, do you think that IRS administrators will let the minimal budget of the TEGE unit go unscathed as other IRS divisions suffer eviscerating cuts?

Where is the nonprofit sector’s leadership on the IRS budget? For years, it has been well known that the tax-exempt unit of the IRS has been grossly underfunded. Leadership organizations should be militating for adequate funding for the IRS. The most recent issue of the National Council of Nonprofits newsletter, Nonprofit Advocacy Matters, was published on July 14th when the House was just taking up the IRS budget, so it perhaps isn’t surprising that the “federal issues” highlighted in the newsletter were the House’s consideration of extending charitable giving incentives for food inventories, conservation easements, and the IRA rollover (plus the streamlining and consolidation of the private foundation excise tax) and Rep. Camp’s draft tax reform plan that would potential reduce, according to NCN, charitable giving, and not the IRS budget debacle. Independent Sector’s “Word on Washington,” also dated July 14th, led with a paragraph on the charitable giving extenders, IS’s open letter on the subject to the House leadership, and an ad that IS ran in the July 16th edition of Roll Call.

That’s not going to be good enough. For all of the talk of nonprofit accountability and the need for effective IRS oversight and enforcement, regardless of Lois Lerner’s history, the leadership of the nonprofit sector has to stand by its words and call for adequate IRS funding, not just for this year, but reversing the underfunding that has plagued its tax exempt oversight functions for a long time.


  • Whimsical Anarchist

    Your outrage is bemusing, especially since you predicted the reaction.
    Funding is pretty much the only tool available to a largely toothless Congress.
    They are swinging at the ball with the only bat they have.

    You might at least give a “smidgen” of upset at the mysteriously erased hard drives or the other IRS behaviors that prompted this.I, for one, take exception being treated as stupid by any of the politicos.

    Political leanings aside, do you really not care that a federal agency acts exempt from congressional oversight?

  • peter pressure

    So your saying the House should have rewarded the IRS for failing to prevent the political targeting of citizens? Or maybe they should have been rewarded for losing emails related to the investigation?

    What exactly has the IRS done in this scandal that means they should be given more funding to target more people? Will more funding mean they will lose less evidence during the investigation of a crime?

  • Rick Cohen

    Dear Whimsical: take a look at our coverage of the IRS scandals, I think you’ll find we’ve covered the IRS problems deeply and repeatedly–political leanings aside. And Congress has other bats to swing. It’s like the Congressional reaction to the VA problems (“we’re shocked, shocked!”) when they had tons of opportunities to learn and intervene. Thanks for our comment.

  • Rick Cohen

    Dear Peter: Thanks for your comment. Congress has given many functions to the IRS. The Service should be fixed, as dozens of articles we’ve written for NPQ have called for. Fixing IRS is needed. Providing funding to the Service to do its work isn’t a reward, but slashing its enforcement budget is a punishment. Fixing IRS–which Congress and the President can and should do–is needed. Thanks for your feedback.

  • SickoftheSpin

    What amount of your outrage would be felt or publicized if this was a Republican administration targeting liberal nonprofits for purely political purposes? During election years? To suppress opposition? Then conveniently losing subpoenaed documents and evidence? Stonewalling Congress for nearly 2 years then covering it up and watching the media cover up the cover up???? Blaming it on underling workings at a processing center in Cincinnati??? What would your outrage be if Republican or Conservative appointees were parade in to testify before Congress then plead the 5th after testifying without cross examination and sitting there smugly lying to Congress or acting as if they had no knowledge of their employees actions? Holding no one, not one single person accountable???? And the President stating there is not a smidgen of corruption when it is patently clear the corruption is rampant and very high up…..

    This continual spin from the left and the total inability to find any wrong doing in the most corrupt, unconstitutional, nontransparent, destructive administration this country has ever witnessed is what is an outrage. The continual spin with intent to mislead, misdirect, conceal, stall and lie to the American public is the outrage. There is little doubt you are a liberal Rick and your ideology is loud and clear. Every once in a great while you actually “report” accurately, it feels like being throw a bone before it is ripped away. Accuracy and unbiased reporting is not the case here and it is seldom seen in our feckless media anymore. Where are Woodward and Bernstein now?

    Frankly, when nearly 1/2 of American adults do not pay income tax but are collecting income tax refunds is an outrage to those of us who work to pay these exorbitant and continually increasing taxes. Harassment of the citizenry from a Federal agency to produce records for 7 years when they cannot follow the law and archive the past 2 years of pertinent documentation, covering it up and stonewalling for months and months and then lying to Congress and the public who pays their salaries. Crimes committed to further political agendas of the party in office is corruption in the purest form. Watergate was child’s place compared to the IRS scandal, then we must throw in Fast & Furious, Benghazi, Harry Reid using campaign money to fund his granddaughter’s wedding, Nancy Pelosi’s husband getting multi-million dollar government contracts, and the Justice Department refusing to properly investigate any of this and stonewalling Congress as well. But they want to investigate a parade float??? What? This is a mockery of American justice.

    Defund and dissolve the IRS. Implement a flat tax that all Americans pay – no more return filings, no more refunds – to anyone, no more fear of government tax agencies, no more ability to defraud the government, no more cheating, no more corruption, no more intimidation, and no more bloated government agency. Flat tax — fair to everyone.

  • R. Scott Dixon, CPA

    Seems like the author is misguided. Do you think the top 1% is going on an unmitigated cheating spree? Do you think they prepare their own tax returns? The answer is no. They are prepared by well-qualified, highly educated certified public accountants, not barber shop tax preparers. We are governed by very strict moral, ethical and professional standards. Just leave us alone and we will do our job, which is the same as it’s always been. The funds can be much better used in more pressing IRS matters, like guidance. The bad guys will be caught. It doesn’t matter how much money you throw at it.

  • Rick Cohen

    Dear Scott: thanks for your comment. As a great fan of CPAs, I hope you’re right. Unfortunately, in many fields of endeavor, there have been plenty of people stepping out of the boundaries of moral, ethical, and professional standards. Bad behavior as you and I know have even brought down, in one case, one of the nation’s paramount accounting firms, where self-regulation didn’t do the trick. I find the combination of the ethics and standards you cite plus a robust regime of governmental regulation and oversight as necessary. The challenge in public policy is to find the right balance. And the cuts that the House has made on enforcement should, as you’ve intimated, be looked at in the context of historic IRS underfunding for guidance and education. That’s true in the tax exempt arena for sure. Thanks again for your observation.

  • Marc H

    I’m outraged that the House stopped at a 25% decrease. The IRS is corrupt and no amount of legislation or money will fix it. The tax code has grown out of control. A flat tax is needed and a new agency to collect taxes needs to be formed. Or even better, repeal the 16th amendment and institute a Fair Tax. Putting more money in the hands of potential donors is what non-profits should be advocating for, not the survival of a corrupt government agency.

  • Cathy Beauregard

    Horrible, Non Profits are the BIGGEST place crooked people wash money.

    I am a victim of this, and the non profit I founded was taken over by crooked politicians who are using it as a money wash because they know they can get away with it because there is little over site.
    Cutting enforcement is silly, if we are hurting for funds by cutting down enforcement to collect funds already owed is STUPID..

    The system needs the money people are cheating them out of……

  • ReturnOurGovt

    Before you post – after you read the article – acknowledge this:

    Fraud grows fast. It’s quick, easy money and there are smart people out there eager to find ways to exploit any entity they can.

    That said. Do you like your taxpayer dollars taken away from an underfunded enforcement system? Is that smart? According to the GOP – the actions of the government send signals. Now the clear signal they wish to send to the IRS is “shame on you”. Do I like the tax man? Nope. Do I pay my taxes? Yep. So do I want my tax dollars used as a whip to punish a part of the govt? Nope. What solutions have my tax dollars paid for? None. Just a very public display of shame and humiliation. I for one don’t condone this misuse of my taxpayer dollars. They want to shame a government entity and ignore problems and avoid finding solutions? Not on my dime.

    What’s with all the punishing anyway? Isn’t that a bully mentality? Someone must pay! Well who’s paying for the harm caused by the GOP? Anyone? Who’s being held accountable for gross misuse of public funds? How do things get solved unless they stop dictating who to scorn and start solving real problems for the country.

  • Munchkin

    You left out that liberal groups were also targeted. And the liberals see that as equitable. Finally some quality and yet again folks like you and your GOP don’t want to be associated with them. You guys see yourselves as above the rest and that’s a shame because we live in a country based on Equality. GOP fails to recognize that and repeatedly affirm that when Liberals and Conservatives are treated equally – it’s the Conservatives crying foul and demanding better treatment.

  • GreatScott

    Scott – if the GOP can draw a cause and effect conclusion between Obama’s Dream act to the current humanitarian crisis… then wouldn’t they agree that defunding an enforcement arm of a system when it has already proven to be weak…. wouldn’t that seem inviting to the fraudsters? If 2 year old’s, by learning that if they were born in America and spent X amount of years here, are then incentivized to crawl all the way from Guatemala because there’s a chance they might be able to exploit such laws… so they hand themselves over to the border control because hey what do they know… they are 2? Oh yes but getting back to the urgent matter at hand! Criminals with sophisticated software and schemes to defraud our government probably wouldn’t connect the dots between less funding and easier access to milk grannies of their savings. They just aren’t that bright right?

    I hate the IRS too. It sucks. We pay taxes and I fear audits too. Just made it into the middle class and who has the time for an unnecessary audit? Not me, i’ve got a life to live and my money is better spent on shoes for the kids than tax accountants.

    Bottom line though. We pay taxes. If I were the boss I see no solutions in slashing budgets. Think about it in common sense terms. Would Coca Cola find this a good decision and follow suit? Sure – just announce to the world that they are leaving their secret formula unguarded and the patent office is just out partying… I doubt they would.

    This is your country. How would you run it? I hope not like the GOP.

  • Whimsical Anarchist

    Cathy, you seem to be letting them distract you into thinking that this is about getting the IRS to function better.
    Of course this will not do anything to help the IRS improve. It is about gaining/losing political power.

    One lesson I have learned in life is this: If an otherwise sane person repeatedly asserts an irrational position, they are really talking about something else.
    Success in life often hinges on one’s ability to “sniff out” the real issue.

    Take immigration for example. Regardless of your personal position, I ask you to imagine what would happen if Disneyland allowed people to cut the lines. Chaos, right?

    No one is seriously proposing that we endlessly allow “line cutting” at the border but many folks are distracted into pointing out the error in that policy when that isn’t really the issue at all. We are all talking about how silly and stupid the current policy is.
    I am not certain what the agenda is for sure in the immigration melee, but you can bet that it involves power, and the final goal is not the efficacy of the immigration policy.

    So, yes you are right that de-funding enforcement and collection is silly and stupid and isn’t going to make our taxation system more fair…

    but, that isn’t the goal.