National Taxpayer Advocate Nina Olson makes clear in her 2017 Annual Report to Congress that the underfunded IRS is in dire straits — and faces even worse as the agency grapples with implementing the recently enacted tax law.
“As the National Taxpayer Advocate, I see daily the consequences of reduced funding of the IRS and the choices made by the agency in the face of these funding constraints,” Olson said in her report. “These impacts are real and affect everything the IRS does. Funding cuts have rendered the IRS unable to provide acceptable levels of taxpayer service, unable to upgrade its technology to improve its efficiency and effectiveness, and unable to maintain compliance programs that both promote compliance and protect taxpayer rights.”
The agency’s shortcuts have become the norm and they don’t mesh with high-quality tax administration, she wrote, adding that “there is no doubt that the IRS needs more funding.”
In its own 2017 annual report, the IRS said that staffing cutbacks had led to fewer investigations and recommended prosecutions.
Although the IRS often says it lacks the proper resources to pursue certain actions or services, Olson states that “cannot be used as an all-purpose excuse for mediocrity.” A lack of resources often becomes a “reflexive excuse for not doing something, or worse, for doing things ‘to save resources’ that harm taxpayers, foster noncompliance, and undermine taxpayer and employee morale,” she said.
The agency estimates it will need about $495 million in fiscal years 2018 and 2019 to implement the new tax law. The IRS has identified 131 filing season systems — including new individual and business tax rates, gradual inflation indexing changes for deductions and credits, threshold changes repeal, removing existing credits from systems, and updating fraud detection filters — that the new law will affect.
Yet the IRS estimated that even before the new tax law was passed, it would only be able to answer six out of ten phone calls from taxpayers who want to speak to an actual person and, for the entire 2018 fiscal year, the agency figures that only four out of 10 calls would reach a real person.
What’s more, the IRS has only answered “basic” tax-law questions during filing seasons since 2014 and has not answered any tax questions after the April 15 deadline either by phone or its Taxpayer Assistance Centers despite the fact that more than 15 million people file returns later in the year.
What to do? The IRS could present a specific plan that indicates the agency knows that taxpayers want access to all customer service methods — online, phone, in person — instead of promoting primarily online service, Olson said.
That way, the agency stands to gain more street cred with the Appropriations Committees and likely more funding. “As the risk of vast understatement, a first step toward getting additional funding is complying with what your appropriators ask you to do,” she said.
Here are what Olson considers the 21 most serious problems facing the IRS:
- Private Debt Collection: The program doesn’t generate net revenues, appears to have been put in place inconsistently with the law, and burdens those taxpayers who face economic hardship.
- Telephones: The IRS needs to modernize its old-school tactics and create an omnichannel customer service.
- Online accounts: Focusing on this doesn’t take into account the differences and needs among taxpayers, and an estimated 55 million lack broadband or internet service.
- Audit rates: The agency doesn’t consider many of its compliance activities as traditional audits. That creates an underreporting of its compliance activity and return on investment, and circumvents taxpayer protections.
- Exempt organizations: Form 1023-EZ increases results in a tax-exempt status for unqualified organizations.
- Passport denial and revocation: The IRS plans to certify seriously delinquent tax debts that will lead to depriving taxpayers of a passport without regard for their rights.
- Employee training: Changes and reductions have hurt efforts to provide top service.
- Taxpayer rights: The IRS doesn’t effectively evaluate and measure how it adheres to taxpayers’ right to a fair and just tax system.
- Outreach and education: While digitized taxpayer services are moving along, the agency has to do more to improve traditional outreach methods.
- Taxpayer assistance centers: Cutbacks have reduced the number of centers and ability for taxpayers to have in-person help.
- VITA/TCE programs: Restrictions on Volunteer Income Tax Assistance (VITA) and Taxpayer Counseling for the Elderly (TCE) programs put more burdens on taxpayers and hurt access to free tax preparation help.
- Earned Income Tax Credit (EITC): The IRS is improving, but it still hasn’t incorporated research that indicates positive effects of taxpayer education on compliance.
- Military assistance: Customer service to the military taxpayers fails to meet their needs.
- Sharing economy: Taxpayers in this bracket don’t get proper guidance from the IRS.
- International: The agency’s approach to credit and refund claims of nonresident aliens burdens those taxpayers who are compliant.
- Individual Taxpayer Identification Numbers (ITINs): The IRS has failed to effectively communicate with ITIN users, which hinders compliance.
- Appeals: The IRS imposes unreasonable restrictions on in-person conferences for campus cases while making the conferences more available for field cases.
- Appeals: The IRS’s decision to expand participation of counsel and compliance employees in appeals conferences changes the nature of them and will likely reduce the number of case resolutions.
- Identity theft: As this crime evolves, the IRS must assess and modify how it assists victims.
- Fraud detection: Though improvements have been made, a significant number of legitimate taxpayers are being improperly selected by these systems, which results in delayed refunds.
- Refund anticipation loans: There’s more demand for these and, thus, more delays in getting the refunds.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.