The hits keep coming.
Just one day after Internal Revenue Service (IRS) Commissioner John Koskinen warned employees that budget cuts would lead to delayed refunds, lags in correspondences and potential furloughs, Taxpayer Advocate Nina Olson released her 2014 annual report to Congress. Olson’s report didn’t offer any relief for taxpayers, instead expressing concern that “taxpayers this year are likely to receive the worst levels of taxpayer service since at least 2001.” Ouch.
The annual report is required under Section 7803(c)(2)(B)(ii) of the Internal Revenue Code which mandates that the NTA identify at least 20 of the most serious problems encountered by taxpayers and make administrative and legislative recommendations.
Tops on Olson’s list (again)? Concern that the IRS does not have the resources to adequately serve taxpayers.
The most serious problems, as identified by Olson, are:
- Taxpayer Service Has Reached Unacceptably Low Levels and Is Getting Worse, Creating Compliance Barriers and Significant Inconvenience for Millions of Taxpayers
- Due to the Delayed Completion of the Service Priorities Initiative, the IRS Currently Lacks a Clear Rationale for Taxpayer Service Budgetary Allocation Decisions
- The Lack of a Cross-Functional Geographic Footprint Impedes the IRS’s Ability to Improve Voluntary Compliance and Effectively Address Noncompliance
- The IRS Lacks a Permanent Appeals Presence in 12 States and Puerto Rico, Thereby Making It Difficult for Some Taxpayers to Obtain Timely and Equitable Face- to-Face Hearings with an Appeals Officer or Settlement Officer in Each State
- Volunteer Tax Assistance Programs Are Too Restrictive and the Design Grant Structure Is Not Adequately Based on Specific Needs of Served Taxpayer Populations
- Implementation of the Affordable Care Act May Unnecessarily Burden Taxpayers
- The Offshore Voluntary Disclosure (OVD) Programs Initially Undermined the Law and Still Violate Taxpayer Rights
- The IRS Does Not Ensure Penalties Promote Voluntary Compliance, as Recommended by Congress and Others
- The IRS Does Not Report on Tax Complexity as Required by Law
- The IRS Has No Process to Ensure Front-Line Technical Experts Discuss Legislation with the Tax Writing Committees, as Requested by Congress
- The IRS Does Not Sufficiently Incorporate the Findings of Applied and Behavioral Research into Audit Selection Processes as Part of an Overall Compliance Strategy
- Taxpayers Are Unable to Navigate the IRS and Reach the Right Person to Resolve Their Tax Issues
- The IRS Has Overlooked the Congressional Mandate to Assign a Specific Employee to Correspondence Examination Cases, Thereby Harming Taxpayers
- The IRS’s Failure to Include Employee Contact Information on Audit Notices Impedes Case Resolution and Erodes Employee Accountability
- Despite a Congressional Directive, the IRS Has Not Maximized the Appropriate Use of Videoconferencing and Similar Technologies to Enhance Taxpayer Services
- The IRS Does Not Clearly Explain Math Error Adjustments, Making it Difficult for Taxpayers to Understand and Exercise Their Rights
- Refund Disallowance Notices Do Not Provide Adequate Explanations
- The IRS Needs Specific Procedures for Performing the Collection Due Process Balancing Test to Enhance Taxpayer Protections
- Despite Some Planned Improvements, Taxpayers Experiencing Economic Hardship Continue to Be Harmed by the Federal Payment Levy Program
- Despite Congressional Actions, the IRS Has Failed to Realize the Potential of Offers in Compromise
- The IRS Does Not Comply with the Law Regarding Victims of Payroll Service Provider Failure
- The IRS’s Administrative Approval Process for Notices of Federal Tax Lien Circumvents Key Taxpayer Protections in RRA 98
- Statutory Notices of Deficiency Do Not Include Local Taxpayer Advocate Office Contact Information on the Face of the Notices
It’s a grim list.
But the problem catching the most notice this tax season remains service to taxpayers. Olson notes that the cuts to the budget have “brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively.”
Olson reported that nearly 200 million Americans interact with the IRS each year. That’s more than three times as many as any other federal agency. Of those interactions, the IRS typically receives more than 100 million telephone calls, 10 million letters, and 5 million visits at its walk-in sites from taxpayers each year. Funding cuts, however, have made those interactions more challenging.
In 2004, with more resources, IRS was able to answer 87% of calls calls with hold times averaging just 2.5 minutes. In 2015, the IRS expects to answer fewer than half of the calls received: levels of service could average as low as 43% with hold times averaging more than 30 minutes.
In 2004, the IRS responded to a number of tax law questions, on the phone and in roughly 400 walk-in sites. The IRS also prepared nearly 500,000 tax returns for taxpayers who requested help, including those for low income, elderly, and disabled taxpayers. In 2015, during filing season, the IRS will not answer any tax law questions other than those considered “basic.” Once filing season wraps, the IRS will not answer any tax law questions at all: taxpayers who file later in the year are simply out of luck.
Even though resources are shrinking, IRS’ workload is increasing. The IRS has seen an 11% increase in returns from individuals and an 18% increase in returns from business entities over the past ten years. Add in implementation of the Patient Protection and Affordable Care Act (Obamacare) and the Foreign Account Tax Compliance Act (FATCA) for the 2015 tax season and the work continues to pile up.
At the same time, the IRS budget has been reduced by about 17% in inflation-adjusted terms just since FY 2010. That means fewer employees (a nearly 12,000 employee drop) and less opportunity for employee training.
While admitting that IRS could be more efficient, Olson wrote, “[W]e do not see any substitute for sufficient personnel if high-quality taxpayer service is to be provided. The only way the IRS can assist the tens of millions of taxpayers seeking to speak with an IRS employee is to have enough employees to answer their calls. The only way the IRS can timely process millions of taxpayer letters is to have enough employees to read the letters and act on them. And the only way the IRS can meet the needs of the millions of taxpayers who visit its walk-in sites is to have enough employees to staff them.”
In her report, Olson encouraged Congress and the IRS to work together to ensure that taxpayer needs are met, writing:
We do not think it is acceptable for the government to tell millions of taxpayers who seek help each year, in essence, ‘We’re sorry. You’re on your own.’
In addition to identifying taxpayer problems, the report includes dozens of recommendations for administrative change and nearly two dozen recommendations for legislative change. For more on Olson’s findings, including more numbers and suggestions for change, check back tomorrow. If you simply can’t wait, you can access the entire report here or just take a peek at the Executive Summary (downloads as a pdf). When you do, be sure to note the dedication.
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