Reagan administration budget cuts actually will weaken the ability of the Internal Revenue Service to reduce fraud and improve compliance, despite claims that tax collections will be strengthened, the chairman of a House subcommittee charged yesterday.
On the basis of fiscal 1983 budget documents obtained by the committee staff, Rep. Ben Rosenthal (D-N.Y.), chairman of the Commerce, consumer and monetary affairs subcommittee, made the following points:
* The examination section of the IRS will check the smallest percentage of returns in its history. According to budget documents, "With resources somewhat below FY 1982 levels and continuing increases in workload, examination overall coverage is expected to drop to an all-time low of 1.57 percent." This compares with an audit rate of 1.88 percent in 1981.
* The summary of the budget document says that 1983 estimates for the taxpayer service and problem- resolution programs have been omitted and will be submitted in amendment form later. The detailed descriptions of these programs, however, state that "a tentative decision has been made to eliminate the Taxpayer Service function in FY 1983," and the problem-resolution program "will no longer exist."
* Although the Reagan administration has announced plans to increase the enforcement division in the IRS by 5,000 persons in 1983, with claimed increased tax receipts of $2.1 billion, the overall staffing level of the agency willl have dropped by 4,000 positions in 1983 from the levels called for in former president Carter's final budget proposals.
A spokesman for the IRS said some of Rosenthal's charges are partially accurate, but the most recent budget decisions have functioned to ameliorate some of the cuts. Taxpayer services will be cut by 35 percent, not eliminated, and the problem-resolution program will be preserved. The audit rate will be 1.67 percent, not 1.57 percent. This is lower than in 1981, but the spokesman said the audits will be concentrated more heavily on large corporations and high-income individuals.
In a letter to Treasury Secretary Donald T. Regan, Rosenthal said "while the number of tax returns received will increase by 5 million in FY 1983 to 145 million, the number of tax returns audited will drop to 1.7 million. . . . The reduction comes at a time when unreported income from legal sources approaches $100 billion annually--a loss to the Treasury of approximately $25 billion."
A decision to eliminate or cut back on the taxpayer service section would be "a particularly unwarranted way to save money because it hits hardest at the elderly and low-income taxpayers who most need and can least afford to pay for assistance in preparing their tax returns," the New York Democrat said.
He said cuts in initial processing will mean that reports showing cash withdrawals in excess of $10,000--often a signal of illegal drug or smuggling activity--"will no longer be processed." But the IRS said these cuts will not be made.