Sequestration Will Lead to IRS Cuts in Services, Enforcement, and Tax-Related Payments

Now that sequestration has taken effect, the IRS has announced the following reductions in tax-related payments as a result of the Budget Control Act of 2011, P.L. 112-25. These reductions are effective beginning on March 1, 2013, until either the end of the government’s fiscal year (Sept. 30, 2013) or other intervening congressional action:

• Whistleblower payments under Sec. 7623—once the amount of the payment due to the whistleblower is determined, that amount will be reduced by 8.7%.
• Payments to tax-exempt employers of the refundable portion of the small-employer health insurance expense credit (Sec. 45R(f)) are reduced by 8.7%.
• Payments under Sec. 6431 (which allows the issuer of certain qualified bonds to receive the interest payments directly for Build America Bonds, Qualified School Construction Bonds, Qualified Zone Academy Bonds, New Clean Renewable Energy Bonds, and Qualified Energy Conservation Bonds) are reduced by 8.7%.

In addition, according to the Office of Management and Budget’s Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, the IRS faces budget cuts under the sequester totaling $597 million for taxpayer services, enforcement, operations support, and business systems modernization.

Last week, Steven Miller, the IRS’s acting commissioner, announced that the cuts would require IRS employees to take unpaid furloughs, but insisted the furloughs would not affect tax season. Starting in the summer, each employee will be subject to five to seven furlough days through the end of the government’s fiscal year. The furloughs would apply to all IRS employees and would amount to no more than one furlough day per pay period. Additional savings will be achieved by continuing the IRS’s hiring freeze; reducing funding for grants and other expenditures; and cutting costs for travel, training, facilities, and supplies.

Other tax-related budget cuts the Office of Management and Budget reports will be necessary under the sequestration include a $3 million reduction in spending by the Tax Court, $6 million in cuts to salaries and expenses in the Treasury Department’s Financial Crimes Enforcement Network, and $8 million in cuts to the Treasury Inspector General for Tax Administration budget. The sequestration will also result in a $187 million reduction to the grants for specified energy property in lieu of tax credits that were enacted in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, and extended by the American Recovery and Reinvestment Act of 2009, P.L. 111-5.