When Congress threatened “right-sized” budget cuts for the Internal Revenue Service last July, it was a clear swipe at the agency which had been under fire following a number of scandals. House Appropriations Chairman Hal Rogers (R-KY) announced that the cuts would be in place at IRS “until there are clear signs that they have fixed their broken bureaucracies, curtailed lavish spending on employee conferences and awards, and returned to abiding by the will of Congress.”
It was meant to punish the IRS. What it did was punish taxpayers.
That was clear today after National Taxpayer Advocate (NTA), Nina E. Olson, released her 2013 annual report to Congress. The annual report is required under Section 7803(c)(2)(B)(ii) of the Internal Revenue Code: under the terms, the NTA must identify at least 20 of the most serious problems encountered by taxpayers and make administrative and legislative recommendations. Tops on Olson’s list? Concern that the IRS does not have the resources to serve taxpayers – and it’s getting worse.
In 2013, nearly four in ten taxpayer calls went unanswered. The IRS only answered 61% of calls from taxpayers. That’s down sharply from a decade ago when 87% of calls were answered. Olson noted that half the decline had occurred since 2010.
Those taxpayers who did get through were forced to wait. And wait. And wait. The average wait time for taxpayers hoping to speak to a customer service representative at IRS was 17.6 minutes. That’s more than six times the wait from ten years ago when taxpayers had to hold just 2.6 minutes.
More than half of all written correspondences sit unanswered after 45 days.
And don’t bother stopping by: while the IRS answered some 795,000 tax law questions a decade ago at its walk-in sites during the filing season, last year, it handled just 110,000 tax law questions. This year, they’ve announced they’ll only answer “basic” questions during the tax year and none at all after that. Olson wrote that “it is a sad state of affairs when the government writes tax laws as complex as ours – and then is unable to answer any questions beyond ‘basic’ ones from baffled citizens who are doing their best to comply.”
You can completely forget personal assistance. The IRS recently announced it won’t prepare returns at all, citing a decline in resources. It was one of a number of cutbacks at the agency.
What accounts for the cuts in service? The report notes that the IRS’s workload has increased while IRS funding and staffing have been cut. And even more work is on the way. There are new taxes, Foreign Account Tax Compliance Act (FATCA) deadlines and challenges administering those “shared responsibility payments” under the new health care law.
So we’re shoveling on more work. And we’re cutting resources.
But that’s okay, right? Because we’re saving tax dollars with those cuts, according to Congress.
Only not so much. Last year, the IRS collected $255 for each $1 it received in appropriated funds. That’s a substantial return on investment (ROI). Cutting back funding dollars means reduced revenues. In other words, cutting collections budgets means that there’s less in the pot for everyone. In particular, Olson notes that “[f]or virtually every other spending program, a dollar spent is just that – it increases the deficit by one dollar. But a dollar spent on the IRS generates substantially more than one dollar in return – it reduces the budget deficit.”
Olson says that the individual pieces of the bigger struggle merely overshadow the “major problem facing the IRS today — unstable and chronic underfunding that puts at risk the IRS’s ability to meet its current responsibilities, much less articulate and achieve the necessary transformation to an effective, modern tax agency.”
The report wasn’t all daggers and darts at Congress for reduced funding. Olson did point out a number of other challenges for IRS to tackle including ongoing issues with the regulation of return preparers, identity theft, hardship levies, refund fraud, and return preparer fraud. Olson also called out collections problems – including statute of limitations issues – as a significant challenge. Olson also hit on some problems that continue to make the news, including problems with the Exempt Organizations application process (like you didn’t see that one coming), new ways of administering Individual Taxpayer Identification Numbers (ITINs), offshore disclosures, FATCA compliance, taxing digital currency like Bitcoin, and compliance for same-sex couples who are now married.
Throughout the discussions, Olson tries to make clear that the series of short-term solutions thrown at these problems “merely patch over problems and impose unnecessary burden and even harm on taxpayers.” The result is simply more work and more waste. What Olson favors is stability through increased funding, better training, and what she refers to as a Taxpayer Bill of Rights.
(Olson also zeroed in on the most litigated issues at IRS. I’ll admit it: that was my favorite bit in the report. Rather than throw a bullet list at you, I’ll follow-up tomorrow with a separate article.)
It’s not a short list. Or a short read. But it’s worthwhile. You can check out the entire report here.
Be prepared, though: it’s not all bad. There is some good news. The report reminded Congress that a whopping 98% of all tax revenue collected by the IRS is paid voluntarily. A mere 2% is the result of IRS enforcement actions.
That means that for all of those bad stories you read – and there are a lot of them – most taxpayers are trying to do the right thing. And you know what that means? We deserve better than we’re getting.
