National Taxpayer Advocate Nina Olson’s mid-year report to Congress about the IRS paints a bleak picture of a beleaguered, underfunded agency laboring to implement the Tax Cuts and Jobs Act with antiquated technology and insufficient staff.
Describing the implementation of tax reform as “herculean,” Olson notes that the IRS has indicated it must program 140 systems, write or revise 450 forms and publications, and issue guidance about dozens of the tax law’s provisos. The IRS also is revising Form 1040 and must train its employees about the law’s changes.
“It’s a very heavy lift,” Olson writes in her report. Still, she maintains that she has “no doubt that the IRS will deliver what it has been asked to do. But this amazing achievement comes at a cost.” Namely, the IRS is underfunded and understaffed.
Since fiscal year 2010, its budget has been cut by 9 percent in straight dollar terms and by 20 percent after accounting for inflation, she states. Since fiscal year 2011, staff cuts range from 7 percent at Taxpayer Assistance Centers to 40 percent for stakeholder partnerships and outreach employees. Cutbacks on revenue agents, appeals and revenue officers and Taxpayer Assistance Center employees range from 30 percent to 34 percent.
“So, in addition to answering the fewest number of enterprise-wide taxpayer calls in recent memory, the IRS also has the lowest individual audit rate in memory (0.6 percent) and its collection actions are way down,” Olson states. “In fact, the IRS has suppressed collection notices because it doesn’t have the resources to handle the incoming phone calls and correspondence prompted by those notices.”
The IRS also implemented the Affordable Care Act and the Foreign Account Tax Compliance Act. To do that, the agency halted all information technology projects that weren’t related to the tax-filing season or the two laws.
Because of the latest task of revising programs for the Tax Law and the new Form 1040, another IT delay is expected, Olson states. Overall, she says the IRS substantially misstates its customer experience performance measures compared to what the 2018 Forrester Federal Customer Experience Index reflects.
How to fix this mess? Olson’s 184-page report offers seven areas that would help begin to restore taxpayer trust in the agency that, naturally, would lead to tax compliance.
Here’s the snapshot:
1. Taxpayer Service
The IRS continues to ignore significant data that indicates taxpayers want several options for different types of interactions. “Even sophisticated taxpayers and representatives want to speak with the IRS about tax matters,” Olson states. “Thus, the way forward must include an omnichannel approach to customer service that focuses on [First Contact Resolution].”
2. Online Services
“The IRS is far behind most Organization of Economic Cooperation and Development (OECD) countries26 (and many non-OECD countries) in developing an online account,” Olson states. Only about 30 percent of taxpayers who want to set up an online account can do it because of tough authentication procedures. “The IRS is right to prioritize data security, but the agency must not neglect the importance of providing improved telephone and in-person services for all taxpayers,” she states.
Those taxpayers who can actually set up an online account find that the IRS technology system is archaic, and the tools that are being tested to email with taxpayers are “clunky and burdensome.”
3. Enterprise Case Management
The IRS has more than 60 case management systems. “There is no one system or repository of data that contains a 360-degree view of the taxpayer’s activity and engagement with the tax system, so often the left hand doesn’t know what the right hand is doing,” Olson states.
4. Underlying IT Systems
According to the Government Accountability Office, the IRS has the two oldest databases in the federal government — the Individual and Business Master Files. The age of the agency’s technology causes patches and workarounds that create risks when trying to merge with current computer hardware and software.
5. Automation, Artificial Intelligence, and Big Data
The IRS does use technology and Big Data to identify fraud and noncompliance. Where it fails is in using technology to help taxpayers get a correct answer or prevent or minimize harm to taxpayers, Olson states.
The IRS could use the data it has to identify taxpayers who face economic hardship and likely would have trouble paying their basic living expenses if back taxes are collected. That way, the agency could screen those taxpayers out of the cohort assigned to private collection agencies. “The IRS’s continuing refusal to use data in this taxpayer-friendly approach constitutes a serious violation of the taxpayers’ rights to privacy and to a fair and just tax system,” she states.
6. Geographic Presence
Outreach and education, congressional and media relations, examinations, and collections in a country as large and diverse as the U.S. should have staffers on board who have local knowledge and interaction. But 12 states don’t have appeals or settlement officers, and 14 states don’t have stakeholder liaison staffers who educate and reach out to small business and self-employed taxpayers.
7. IRS Personnel Challenges
Similar to the technology and geographic problems, the IRS could do more to attract the best job candidates to work in IT, exam, collection, and appeals. The IRS “has not really changed its recruiting to address the fact that people move from one job to another and that a career in government is no longer viewed as a lifetime commitment,” Olson states. “I believe people will work for the IRS if the jobs and work are presented in the right light.”
In tooting the horn for the Taxpayer Advocate Service, Olson states that her agency “has had no problem recruiting people from outside the IRS at all levels, and this ‘fresh blood’ has reinvigorated many of our offices. These new recruits help current employees not feel worn down and see their jobs in a new light.”
“I encourage everyone — members of Congress, the Administration, taxpayers, and tax professionals — to think deeply about what we want the IRS to look like in the 21st century,” Olson concludes. “If we want an agency that is not at the bottom of the customer experience chart, then we need to take the steps to support it — through proper funding, oversight and respect.”
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.