IRS headaches mean pain for taxpayers
By: Lauren French
February 18, 2014 11:51 PM EST
All in a few years, Congress has saddled the Internal Revenue Service with the biggest expansion of federal benefits in a generation and a sweeping crackdown on offshore tax-dodgers, on top of its more mundane responsibilities of processing tax returns.
Pity Joe Taxpayer.
“People show up at 3 or 4 in the morning because the lines [at assistance centers] are so long … they know they have to camp out,” IRS Commissioner John Koskinen said last week in an interview with POLITICO. “To have 18 million calls not go through, to have people have to stand in line for two or three hours at the crack of dawn to try to get into a taxpayer assistance center, that seems to be intolerable.”
Like it or not, the IRS must implement Obamacare. The nation’s taxing agency must also carry out FATCA — the Foreign Account Tax Compliance Act — and a slew of other new tasks. It can’t skimp on tax refunds or employee salaries to save cash.
All of these changes squeeze out help to ordinary taxpayers.
“There are core things we have to do come what may. … We have these wonderful obligations such as FATCA and ACA that we weren’t doing four years ago that we now need to do. It’s not as if we have the same revenues … in the face of significantly increased costs,” Koskinen said.
In fact, the IRS has less revenue.
The Obama administration asked Congress for nearly $13 billion for the IRS in its last budget, but Congress slashed the agency’s budget, giving it $11.3 billion as part of the budget bill approved in January — about a billion less than in 2010.
The results are clear for taxpayers, and they are not pretty.
Nearly 40 percent of the calls from taxpayers seeking IRS help go unanswered, and those that do get through usually wait at least half an hour. That’s up from about 30 percent in 2009 and 13 percent in 2004.
There are no IRS employees staffing a group of taxpayer assistance programs around the country — the centers are now solely run by a volunteer workforce.
Enforcement is also suffering.
IRS audit levels dropped last year to the lowest level since 2006, with less than 1 percent of all returns facing an audit.
Fewer audits means less money. The IRS said it collected $9.83 billion from its audit process in 2013 — the lowest level in a decade. Already the agency has done 100,000 fewer audits in the 2014 fiscal year, Koskinen told POLITICO.
It’s not just the IRS with concerns.
An audit from the inspector general charged with IRS oversight said the agency could be in a bind if the Obama administration continues to tinker with Obamacare deadlines, which it said could create challenges for the agency if there is an onslaught of new queries about the law.
Former Commissioner Mark Everson said service levels today are comparable to those in the 1990s, when the IRS was forced to aggressively restructure after a series of missteps.
“It’s disturbing that service levels are back to where they were in the 1990s. That is not healthy for the system, and I’m surprised that this hasn’t become a bigger issue,” said Everson, now with alliantgroup, a business advisory group.
Republicans have roundly rejected the argument that the agency needs more money. After an embarrassing “Star Trek”-parody training video — with a $60,000 price tag — and a series of lavish conferences came to light, congressional Republicans made the case that the IRS doesn’t need more money, it just needs to spend it better.
Those revelations came on top of the backlash after the inspector general blasted the IRS for added scrutiny of tea party conservative groups, making the agency even more unpopular with Republicans — if that were possible.
Rep. Charles Boustany of Louisiana, the Republican chairman of the Ways and Means subcommittee with IRS oversight, said the House probe needs to be resolved before the IRS asks for a larger budget.
“We want to conclude the ongoing investigation. That means the IRS must comply with Congress and provide all documents and email the Ways and Means Committee has requested. Once that happens and trust is restored in the IRS, we can have a serious discussion about its budget,” Boustany said.
Koskinen said he is sympathetic to concerns of congressional Republicans and is prepared to show “the proof is in the pudding” — a phrase the former Freddie Mac executive is fond of using to illustrate how he expects to prove the agency is changing.
But he also wants to move past the targeting controversy, which has dogged the agency since it broke in May.
“There are 800 people working in our exempt organization division … so people have to understand that the 89,000 other people are doing critical work that had nothing to do with [the targeting],” he said. “So to continue to hold the entire agency hostage to the issue, or complain and say the entire agency therefore needs to do without money, that doesn’t seem to be an appropriate response to what is a serious problem.”
Koskinen said selling the individual harm caused by budget cuts is one strategy to persuade appropriators next year to increase the budget. He didn’t have much time after his late December confirmation to lobby House Appropriations Committee Chairman Hal Rogers (R-Ky.) and his Senate counterpart, Sen. Barbara Mikulski (D-Md.) to increase the budget before they unveiled an appropriations bill in January.
But now he plans to stress to lawmakers how long waits will affect their constituents.
“The fact that our enforcement revenue agents and officers are down by over 3,000 people … doesn’t resonate. What does seem to resonate … is that they are constituents. There are 18 million calls that went unanswered; even if it’s 9 million people calling twice, that is a lot of American voters, American citizens who are getting really crummy service,” he said.
Service also gets the “squeeze,” as Everson describes it, because of inflexibility in the agency’s budget.
Nearly three-quarters of the agency’s $11 billion budget is for employee salaries — a number that makes it hard for the IRS to quickly react to budget changes as the workforce is protected by both union and civil service guidelines, which means it can take years to fire an employee.
With such large swaths of the budget spoken for, voluntary agency programs like service initiatives often get cut first.
The agency has 10,000 fewer employees than just four years ago.
“There is a larger workload and there are significantly fewer employees. What does that mean? It means there is less time for employees to interact with taxpayers. That’s not optimal,” said Jorge Castro, a former senior IRS official who now runs a D.C. consulting firm. “Taxpayers benefit from interacting with a well-trained workforce that understands their issues.”
The IRS has taken steps to shed expenses and automate helplines for taxpayers.
Office space cuts will reduce the budget by $40 million this year, and a reduction in mailings will save the agency $60 million. There has also been a concerted effort to direct taxpayers online for simple questions about filing requirements, to track refunds or access previous years’ tax transcripts.
But directing vast numbers of taxpayers online can create problems, too, said Robert Kerr, senior director of government relations at the National Association of Enrolled Agents, whose members advise taxpayers.
“It’s a ‘Take two Internets and call me in the morning’ solution,” Kerr said. “It is distinctly distasteful to a lot of the folks who need assistance from the IRS, because they want to talk to someone, they don’t want to go on the Internet. The Internet solution is making broad assumptions about a broad swath of the American public, as not everyone is particularly adept.”