IRS Cut Could Raise Deficit, Auditors Say

Forcing the Internal Revenue Service to take its share of budget cuts is likely to worsen the federal deficit, government auditors told Congress today.

“IRS stands virtually alone on the ‘revenue side’ of the government,” Johnny C. Finch, senior associate director of the General Accounting Office, testified. “Government-wide reductions applied to IRS will likely result in forgone revenues, thus increasing the deficit,” he told a House Ways and Means subcommittee.

The GAO also disclosed that in 1985, the amount of taxes owed but not collected grew by 31%--to $45 billion. Despite that growth, the GAO said, the Administration’s 1987 budget seeks no additional money to hire more agents to collect those accounts.

May Lay Off 6,000

Like most other federal agencies, the IRS was forced this year to reduce its budget by 4.3%--and now the agency is saying it will have to lay off 6,000 employees within the next few days unless its budget is increased again.

James I. Owens, acting commissioner of the IRS, said the agency already is spending as if the $340-million supplemental money request were forthcoming. That decision, made with approval of the Treasury Department and Office of Management and Budget, was necessary to see the agency through the tax-return-filing season, Owens said.

“Neither the agency nor the tax administration system as a whole could run the risk of a repeat of the difficulties of 1985,” he said, when computer problems delayed processing of millions of returns and approval of tax refunds. Those breakdowns, in turn, significantly reduced taxpayer confidence in the system, authorities said.

Critical Budget Need

Now, Owens said, “the service has never had a more critical budget need than” the $340-million proposal. The money already has been voted by the House but is part of a catchall money bill that may run into trouble in the Senate.

Because of the budget squeeze, Owens said, the IRS already has deferred hiring additional auditors who would concentrate on tax shelters; postponed a planned step-up in auditing of huge multinational corporations, and cut off overtime not directly involved in processing returns.

The GAO, an arm of Congress, questioned whether the supplemental money request for this year or the budget submitted by the Reagan Administration for 1987 will be sufficient for the IRS.

Some members of the subcommittee, including Chairman J. J. Pickle (D-Tex.,) seem convinced the money is inadequate.

“We’ve been misled by people downtown (in the Administration) who have worn rose-colored glasses” and told Congress not to be concerned, that everything will work out, complained Rep. Byron L. Dorgan (D-N.D.).