If you are a regular reader of this blog, you are already aware that the IRS has proposed to increase the user fees that it charges to taxpayers seeking an installment agreement or an Offer in Compromise with the IRS.
According to a recent article by John Myrick of Tax Notes Today, the IRS has had the authority to charge user fees since the 1950s. However, those fees were simply deposited into the Treasury General Fund and provided no financial benefit to the IRS. In 1995, Congress allowed the IRS to keep these funds up to a cap of $119,000,000.
In 2005, Congress removed the cap. Because Congress has steadily reduced the IRS’ operating budget from $12.15 billion in 2010 to $10.95 billion in 2015, the IRS has responded by increasing the user fees it charges.
The IRS collected $290,000,000 in user fees in 2010, $391,000,000 in 2015 and expects to collect $422,000,000 in 2016. The cost of the user fees falls upon the taxpayer seeking a specific relief associated with that user fee. In addition to increasing the user fees for installment agreements and Offers in Compromise, the IRS has also increased the user fees for the following programs:
|Old User Fee||New User Fee|
|IRS Letter Ruling||$14,000.00||$28,300.00|
|Request for Competent Authority Assistance||$27,500.00||$37,000.00|
|Advance Pricing Agreements||$50,000.00||$60,000.00|
As noted above, the IRS has substantially increased the user fees it charges the taxpayers in response to Congress cutting its budget. However, the cost of administering new legislation is extraordinarily expensive. For example, the IRS will allocate $204,000,000 to implementing the Affordable Care Act, $62,000,000 to implementing the Foreign Account Tax Compliance Act and $30,000,000 to implementing the Achieving a Better Life Experience Act, all of which were enacted after 2009.
Most of the IRS user fees come from installment agreements which are used by taxpayers who cannot otherwise pay their tax bills. This means that taxpayers who have trouble paying their ordinary tax bills are the ones that shoulder most of the user fees charged by the IRS. Allowing the IRS to keep and spend the user fees it charges might not be around for very long. In fact, some lawmakers have introduced a bill that will not allow the IRS to keep the money it earns from user fees. What do you think?