Few, if any, of us enjoy dealing with the IRS. Often polled as America’s most hated federal agency, the agency’s efforts to fulfill its mandate to administer and enforce U.S. tax laws will likely always make it unpopular with most taxpayers. But besides being the nation’s tax collector, some taxpayer and political angst is service-related; long telephone wait times, unexplained taxpayer account adjustments, and generally perceived IRS agent incompetence are just a few common complaints. And it seems that IRS service is getting worse.
Many tax practitioners and commentators have noted a tangible, gradual decline in quality of IRS services. Errors in IRS computerized systems are reportedly to blame for the increase in volume in erroneous tax notices being mailed to taxpayers, and instead of taking only one telephone call with an IRS agent to correct the error(s), it can now take up to three or more before an error is correctly addressed. And that is assuming an agent answers the phone; during the 2014 tax season, nearly 30% of all calls to the IRS were never answered.
Recent reports from the Government Accounting Office and the Treasurer Inspector General for Tax Administration confirm a substantial decrease in service quality. In a recent national tax conference , even IRS Commissioner, John Koskinen, acknowledged the agency’s abysmal service record, and then warned that IRS service for the upcoming 2015 filing season would get even worse - probably a lot worse.
During his comments, Commissioner Koskinen advised the group tax practitioners that “phone service would plummet to 53%” and that even if the IRS performs at its best, the 2015 tax season “is still going to be miserable.” Prior to his remarks, National Taxpayer Advocate, Nina Olson, stated that the 2015 filing season “is going to be the worst filing season since I’ve been the National Taxpayer Advocate [Since 2001]; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.” Olson added that the average taxpayer telephone wait time this filing season is expected to be 34 minutes, which is dismal, except when compared to the projected wait time for the practitioner “priority” hotline of over 52 minutes.
Why such a drastic decline in quality of service, and why is the Commissioner even publicly stating how bad things are and will be, instead or promising improvement? Here are the four main reasons why IRS service quality has plummeted and will continue to decline, at least in the immediate future:
The IRS budget has been the source of some controversy, since the IRS’s fiscal year 2014 budget was nearly $900 million below its 2010 budget, despite receiving responsibility for new tax programs and more than 7 million additional taxpayers. This budget retraction has caused the Service to make difficult choices on cutbacks to taxpayer services, enforcement and technology, and is one of the driving forces behind the other three reasons for IRS quality of service, listed below. Currently, Congress is considering cutting the IRS budget by $341 million for FY 2015.
While the IRS is reportedly becoming more efficient during its fiscal famine, Commissioner Koskinen warned that, “there is a limit… We are not longer going to pretend that cutting funding makes no difference.” In essence, the taxpayer will receive the brunt of the IRS’s financial woes until either the IRS convinces Congress to increase its budget, or until the IRS becomes efficient enough to adequately administer all of its responsibilities within the budget it is given.
New Laws to Enforce
Apart from having to maintain operations for more taxpayers with less resources, the IRS has been saddled with enforcing new laws, the most burdensome being the Affordable Care Act (“ACA”) and the Foreign Account Tax Compliance Act (“FACTA”).
Two major ACA provisions will be implemented at the start of the 2015 filing season: the premium tax credit and the individual shared responsibility payment. In order to administer these provisions, the IRS requested from Congress $430 million to create ACA processes, forms and regulations, and $300 million to adapt its IT systems. “Of which we got zero,” explained Commissioner Koskinen. Without funding, enforcement of taxpayer services budgets will bear the brunt of ACA implementation in the form of additional cutbacks. Additionally, National Taxpayer Advocate Olson expressed her concern with the IRS receiving accurate information from the health exchanges, which process will add to the IRS’s already taxed resources.
A new FACTA provision is also slated for first-time implementation this filing season, which will affect taxpayers holding foreign financial accounts. Apart from the refund delays and normal issues associated with a first -time roll-out, US taxpayers located overseas might have trouble working with the IRS to resolve any FACTA issues. As National Taxpayer Advocate Olson rhetorically asked, “If they [US taxpayers] are overseas, who are they going to call? There is no toll free number.”
Finally, in what has become an unfortunate holiday tradition, a tax extenders bill is expected to be signed into law in the near future. Congress has vowed to vote on these 50-plus laws during its lame duck session, but Commissioner Koskinen warned that unless the tax extenders are passed before December, it could (again) delay the start of filing season and tax refunds. The very short notice of change in tax law further depletes available IRS resources as personnel scramble to update IRS systems and forms to reflect the new laws before the beginning of the filing season.
Stealing taxpayers’ identification information and then preparing and filing a tax return on their behalf may sound a little like breaking into someone’s home so that you can clear their bathroom. Yet this recent rash of criminal activity is not an altruistic act of generosity; thieves file false returns for the taxpayer and then steal the taxpayer’s refund. Apparently, is has been so easy to do that one police Chief told Commissioner Koskinen that “street crime is down because everybody is now filing false IRS returns.” From drug dealers to stay-at-home moms to medical assistants to prison guards, reportedly anyone with a computer, access to someone else’s personal information and basic tax preparation skills can file a false tax return.
A US Treasury audit in 2012 warned that the IRS could issue more than $21 billion in fraudulent refunds by 2017. The audit also found that understaffing and lack of training caused the average identity theft case to lat 312 days. Recent testimony before the US Senate Special Committee on Aging confirms that in order to resolve a false issue, taxpayers often have to speak with “dozens” of agents who are themselves understaffed, undertrained and overworked that they are unable to offer adequate service to timely resolve taxpayers’ account issues.
As a defense attorney for convicted fraudulent filer states, we hope that “the IRS will figure out a way to prevent this from happening in the future, so someone with a sixth-grade education can’t defraud them so easily.” While it appears that the IRS is now preventing some false refunds from being issued, and reportedly shortening the number of days needed to resolve the average case, it is clear that as the IRS stretches its shortened resources to cover this important area, other IRS priorities, such as customer service in general, will continue to suffer.
Loss of Human Capital
Human Capital is largely considered the Federal Government’s most critical asset, which may be particularly true at the IRS considering that three-quarters of its budget is spent on personnel. However, as part of the IRS cutbacks, IRS retirees and other experiences employees are being incentivized to leave, in order to cut down on personnel costs. With nearly 70% of all IRS executives and nearly 50% of all IRS nonexecutive managers eligible for retirement by 2017, the IRS is expecting its own leadership bubble collapse by incentivizing early departure for these experienced employees.
The IRS now operates with 13,000 less full-time employees that it did in 2010, including 5,000 less enforcement personnel such as revenue officers, agents and criminal investigators, but new hires are few and far between. At a recent conference, former IRS Deputy Elizabeth Tucker stated that IRS managers are not allowed to even request a replacement employee until the manager has lost four employees. One report observed that a current IRS employee will see five coworkers leave before one person is hired to help deal with the work load. These departures create critical institutional knowledge and leadership gaps in IRS personnel ranks that are difficult to fill.
These personnel gaps aren’t likely to be filled anytime soon, even by the remaining overworked and inexperienced employees due to severely reduced employee training. Since 2010, the IRS has reduced training costs by 83%, with some divisions seeing as much as 96% reduction in training
As the IRS continues to lose experienced human capital, hiring freezes, training cutbacks and a bursting leaderships bubble has and will continue to result in the IRS workforce becoming less capable of effectively handling taxpayer issues and concerns. According to Commissioner Koskinen, “All we can do is try to maximize our services as well as we can… [y]ou really do get what you pay for.”
The IRS’s budget shortfall critically impacts the other three reasons for reduced IRS customer service: Enforcement of new laws requires more funds for equipment, software, personnel and training; Identify theft continues to run rampant, defrauding the government of millions of dollars, while leaving violated taxpayers to pick up the pieces in its wake; and the IRS human capital crisis continues, as retirees and other former employees leave gaping holes in IRS institutional knowledge and leadership.
Taxpayers and tax professionals will likely have a more difficult time resolving tax issues with the IRS in the near future. This will result in decreased efficiency for tax professionals and increased costs for taxpayers. While the IRS is planning to upgrade its technology to one day handle some of the more routine issues, the immediate IRS strategy is to focus on adapting to and surviving with its scaled-back budget. Expect longerthan-normal time frames for almost any issues, and be prepared to explain to an agent what the correct outcome of the issue should be and why. Happy filing!