Last year, more than 115 million people called the IRS for help on their taxes. | REUTERS Sequester may delay tax refunds

Law-abiding taxpayers could shoulder the brunt of the blow when the sequester hits the Internal Revenue Service Friday — and tax cheats might find it easier to rig the system.

It’s a little-discussed risk of the automatic budget cuts — and yet, another smack to the already battered 2012 tax filing season.


Absent a last-minute deal, the 8.2 percent funding cut facing the cash-strapped IRS will most likely translate to fewer specialists on hand to help taxpayers with their returns and to root out fraud — two tasks that watchdog groups say need more, not fewer, hands.

And while the sequester isn’t great for any federal agency, it amounts to particularly bad timing for the IRS. That’s because, depending on union negotiations, furloughs could come just as millions of Americans are trying to pay their income taxes.

“At a minimum, it’s probably going to take longer for people to get through on the phone; it’s going to take longer for refunds to be processed,” said Floyd Williams, a senior tax counsel at Public Strategies Washington.

Williams, who worked for the IRS for nearly two decades and directed the agency’s legislative affairs office for 16 years, says the sequester could also be a boon to those who purposely commit fraud or accidentally fill out returns incorrectly.

“Anytime there is a drop-off in enforcement, you’re going to see a growth in the so-called tax gap, which is the difference between what the government collects and what is rightfully owed,” he told POLITICO.

Right now, that gap is close to $400 billion.

Of course, this tax season has already been topsy-turvy. Last-minute tweaks in the fiscal cliff forced the agency to postpone the tax season start date and push back some types of returns, and a court decision in mid-January left tax preparers scratching their heads over return preparation rules.

In that vein, the cuts — a self-inflicted punishment crafted by the White House and Congress in hopes of spurring deficit reduction as part of the 2011 debt ceiling deal — are just another loop-de-loop on the 2012 filing season roller coaster.

Acting Treasury Secretary Neal Wolin and acting IRS Commissioner Steven Miller have warned lawmakers and staff that the sequester cuts could mean IRS employee furloughs.

Wolin told lawmakers in a letter Feb. 7 that sequester cuts to the IRS would be “particularly painful … reducing the agency’s ability to provide quality service to taxpayers.”

The IRS has already shaved its 91,000-person workforce by 10,000 employees via attrition over the past two years. Like many agencies, it’s been operating on a reduced budget.

The Taxpayer Advocate Service, an office that strives to make the IRS more user-friendly, told Congress earlier this year that the agency needs more resources to be helpful to Americans.

Now, the IRS is on the verge of operating with even less.

Sequester furloughs would equate to fewer operators or reduced hours at IRS taxpayer call centers, experts say.

Consequently, millions of Americans phoning for help with their returns might not get calls back.

Last year, more than 115 million people called the IRS for help; only 68 percent of those who wanted to speak with tax experts actually got through — and only after holding for an average of 17 minutes on phone lines.

One million of the 10 million written inquiries mailed to the IRS last year also did not get a response.

Sequester furloughs during tax season will exacerbate that backlog, officials and experts have warned.

“If you need any help during the filing process, you’re going to have a much harder time after March 1,” Mark Steber, the chief tax officer at Jackson Hewitt Tax Service, wrote in an op-ed for The Huffington Post on Feb. 15.

His advice: File now, before the sequester hits.

David Kendall, a fiscal policy expert at the centrist Democratic think tank Third Way, says sequester cuts will also slow tax returns since there will be fewer employees to help with processing.

“Your refund checks are going to come later,” he warned, adding that vice versa, taxes owed to Uncle Sam will also take longer to make their way into the Treasury.

Another fear expressed by IRS officials and tax experts alike: Tax cheats will have a better chance of getting away with their crimes because the enforcement arm of the IRS will also be slashed.

“IRS would be forced to complete fewer tax return reviews and would experience a reduced capacity to detect and prevent fraud,” Treasury’s Wolin wrote in his letter.

Almost everyone agrees that’s bad news — not only for the IRS but also for the deficit. IRS officials are quick to tell anyone who wants to slash their budget that every dollar spent on IRS enforcement brings in four for the government.

PSW’s Williams says people might even take advantage of the slack in enforcement, making the problem worse.

“If I think I’ve got a one in 1,000 chance of being audited, I might tend to be a little more sloppy in my record-keeping … and might take some chances that are maybe pushing the envelope,” he said.

In 2011, the IRS collected $55.2 billion from tax law violators with just under 22,000 tax revenue officers, Kendall told POLITICO.

But sequestration could mean furloughing about 1,800 of those positions, he says, which could cost the IRS $4.5 billion in tax revenue.

This problem also eventually would shift to the taxpayer, he argues.

“With less revenue, deficits would rise, as would taxpayer-financed interest on the debt,” he wrote in a report last year. “Specifically, that would mean each U.S. household would have to finance $33 to cover what tax cheats would not pay.”

National Treasury Employees Union President Colleen Kelley, who represents more than 75,000 IRS employees, is already preparing for furlough negotiations — though the IRS had not yet given her union official notice for such plans.

But Kelley points to two factors that potentially could salvage or lessen the sequester’s effects on tax season.

For one, employees have been promised 30 days’ notice before furloughs kick in. That means that the earliest furlough, should the IRS give notice this week, will come at the end of March — the tail end of tax season.

Kelley says employees can also bargain with officials to try to delay their furlough days until later in the year. At the IRS, that means employees might be able to serve their time later in the year, post-filing season.

IRS’s Miller has assured employees he will first try to find savings in travel, training, contracts and grants before freezing work — though Williams says there might not be enough fat to cut in some of those areas.

“In my experience, and I left in June, … they really made a lot of the cuts already, and I’m not sure how much more they can sustain,” he said.

Even Kelley says it will be “a pretty steep climb” to keep furloughs off the table completely.

And therein lies trouble for the taxpayer.

“Filing your income taxes is a broad experience across the country and not a pleasant one for most people,” Kendall said. Sequestration, he said, is “just going to make a bad experience even worse.”