U.S. IRS Commissioner Challenges Budget Cuts

WASHINGTON (Reuters) - U.S. tax collections may decline by $4 billion annually if the U.S. Congress cuts the budget of the tax-collecting Internal Revenue Service, according to a letter from the IRS commissioner on Monday.

In a letter to congressional tax-writing committees, IRS Commissioner Douglas Shulman said steep IRS budget cuts would sap revenue collections and hamper the agency's ability to pursue identity theft, offshore tax evasion and other fraud.

The proposed spending cuts "will result in a direct increase to the nation's deficit," Shulman said.

Enforcement budget pruning as proposed by Congress would mean "that front-line IRS staffing levels must be substantially reduced, leading to a measurable decrease of approximately $4 billion in revenue annually, or seven times the reduction in IRS budget," he said.

Last month, a Senate subcommittee voted to cut IRS funding for fiscal 2012 by $458.8 million. A House bill would fund the IRS at $600 million below the fiscal 2011 level.

President Barack Obama's deficit reduction recommendations called for more IRS funding estimated to bring in $3.2 billion in additional tax revenues over 10 years. (Reporting by Patrick Temple-West (202) 354-5841 patrick.temple-west@thomsonreuters.com)