FY 2015 has been very challenging for the IRS and incredibly difficult for taxpayers and their representatives, particularly in the area of taxpayer service. There is no doubt that the deficiencies in taxpayer service are substantially attributable to a lack of resources. Handling more than 100 million telephone calls, answering ten million letters, and assisting more than five million taxpayers who visit IRS walk-in sites each year requires considerable staffing.
With funding down about 17 percent on an inflation-adjusted basis since FY 2010, and with the IRS having had to implement large portions of the Patient Protection and Affordable Care Act (ACA) and the Foreign Account Tax Compliance Act (FATCA) this year without any supplemental funding, sharp declines in taxpayer service were inevitable. The IRS was forced to make some extraordinarily difficult resource-allocation decisions, and although I disagree with some of those decisions, the general success of the 2015 filing season shows the agency did a good job overall.
Yet it remains the case that millions of taxpayers were unable to reach the IRS by phone; millions did not receive a timely response (if any) to their correspondence; and many more may have had to pay a tax preparer or professional for answers to tax law questions or for assistance they could previously have obtained from the IRS for free. The impact of this increased compliance burden on taxpayers is significant, as is the loss of trust in the tax agency. For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well. In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.
Over the long term, temporary periods of limited funding can have the salutary effect of causing an organization to rethink its mission and allocate its resources more effectively. The IRS is, in fact, evaluating ways to accomplish its mission more cheaply.
But from a taxpayer perspective, I am concerned its long-term approach is headed in the wrong direction. First, the IRS continues to view itself as an enforcement agency first and a service agency second. Enforcement is important, of course, but it is a question of emphasis and self-definition. Second, the IRS’s vision of the future rests on a mistaken assumption that it can save dollars and maintain voluntary compliance by automating taxpayer service and issue resolution and getting out of the business of dealing with taxpayers directly in person or by phone.
What the IRS should do during this period of congressional distrust and resulting inadequate funding is examine every one of its underlying principles. In my view, it should transform itself as a tax agency from one that is designed around nabbing the small percentage of the population that actively evades tax to one that aims first and foremost to meet the needs of the overwhelming majority of taxpayers who are trying to comply with the tax laws.
“The 2015 filing season was akin to A Tale of Two Cities. For the majority of taxpayers who filed their returns and did not require IRS assistance, the filing season was generally successful. For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.”
— Nina Olson, National Taxpayer Advocate
National Taxpayer Advocate Nina E. Olson today released her statutorily mandated mid-year report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year, including the IRS’s long-term strategic planning, tax-related identity theft and administration of the Patient Protection and Affordable Care Act (ACA), and presents highlights of the recently concluded filing season.