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IRS woes add to uncertainties of tax law enforcement

The Memorial Day weekend is about to begin. Government offices and many businesses will be closed on Monday for that holiday. But the IRS is already closed. It's been closed all day all day today and will be closed on four more business days between now and August 30.

The closures are due to across-the-board federal budget cuts, some of which were automatically triggered by a process known as the sequester. In many ways, these IRS budget woes may have more effect on taxpayers than the ongoing political furor over the agency's handling of applications for nonprofit status by conservative groups.

The office closures are not themselves the result of any changes in tax law. But one of the reasons the IRS is so affected by budget burdens is that it administers a tax code that has become so complex. There have been more than 4,000 tax law changes since 2001 alone. The Economist magazine estimates that it costs Americans 6.1 billion hours a year to comply with it.

And yet the budget that the IRS has to administer this sprawling tax code keeps going down. Even before the sequester cuts took effect, the agency's budget had declined by 8 percent since 2010.

These cuts have already had an effect on IRS service to taxpayers. Last year, for example, the agency failed to follow its own rules on timely responses to taxpayer correspondence nearly half the time.

In our next post, we will explore how these considerations contribute to the way the IRS approaches tax audits and investigations of possible tax fraud.

Source: "Who will tame the taxman?" The Economist, May 25 (print edition date), 2013

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