UPDATE 1-US tax head warns against Republican IRS cuts
* IRS defends 9 pct budget request for US tax agency
* Shulman says Republican cuts would impair enforcement
* Shulman: no liens or fees to enforce health law (Adds lawmaker's comments, IRS chief's comments, details on healthcare law implementation)
By Kim Dixon
WASHINGTON, March 31 (Reuters) - The chief U.S. tax collector said on Thursday that budget cuts proposed by Republicans would have "potentially devastating" impact on the nation's tax system, including a drop in enforcement revenue by $4 billion for the rest of this year.
The Republican-led U.S. House of Representatives passed a bill earlier this year to cut $61 billion from the federal government for the rest of 2011, with about $600 million from the agency's budget for the rest of 2011.
"Those are just big, big cuts that would have to be jammed into a six-month window," Internal Revenue Service Commissioner Douglas Shulman, who was appointed by former Republican president George W. Bush, said.
He said the cuts would lead to drops in customer service, processing and enforcement.
A major part of the agency's recent enforcement efforts involve going after wealthy tax cheats. The IRS is now combing through about 18,000 new returns from those who took part in a tax amnesty program for undeclared assets held abroad.
Shulman also defended the Obama administration's 2012 budget request for $13.3 billion in funding, a 9 percent boost from 2010 levels, to a congressional panel.
The House, Democratic-led Senate and the Obama administration are negotiating a deal to keep the government running for the current year with about half the level of cuts passed by the House. The details on how the cuts would be spread out are not clear.
A clash over spending cuts has led to a series of short-term funding measures, the latest of which expires April 8.
Republicans at the hearing focused on the impact of the tax code's complexity on business and individual taxpayers, the stated purpose of the hearing.
"Too often we all forget the enormous price in both time and dollars that the individual taxpayer has to pay to comply with the tax filing requirement," said Charles Boustany, the Republican chairman of the subcommittee holding the hearing.
The audit rate for businesses with assets below $10 million is less than 1 percent and for companies with more than $250 million in assets, about 23 percent of businesses are audited, Shulman said.
The biggest companies generally have IRS auditors on site throughout the year.
The IRS collects most of the government's revenue, about $2.3 trillion in 2009. Shulman also said the agency's enforcement role contributes to cutting the federal deficit.
"Our budget more than pays for itself and directly contributes to deficit reduction," he said.
HEALTHCARE LAW ENFORCEMENT
The commissioner also faced questions about enforcement of the landmark healthcare overhaul law signed last year by President Barack Obama. Republicans in the House passed a bill repealing the law earlier this year, though the Senate and Obama will block it.
Republicans especially detest the law's mandate that individuals buy insurance and have warned about IRS agents stalking citizens who do not comply. Under the law, by 2016, those without coverage could see fines of 2 percent of their income.
Boustany and other Republicans lamented the IRS involvement in social programs.
Shulman noted the law prevents the IRS from issuing liens or fines. The IRS will be matching documents received from insurance companies about who has coverage and issuing a credit-card like "bill" to those who have not complied.
One Republican said that did not sound like enforcement.
"Some would call that enforcement -- getting a letter from the IRS," Shulman said. "You don't have agents moving around asking these things, you have document matching." (Reporting by Kim Dixon, editing by Matthew Lewis)