Underfunded IRS Swamped with Problems | CPA Trendlines

Olson talking budget cuts on C-Span

Not a good way to start Tax Season 2018.

An angry and frustrated National Taxpayer Advocate Nina E. Olson has slammed Congress hard in the Taxpayer Advocate Service 2017 Annual Report to Congress. After a series of IRS budget cuts over the last several years, Olson says she sees the daily consequences of reduced funding and the choices made by the agency in the face of funding constraints.

“Funding cuts have rendered the IRS unable to provide acceptable levels of taxpayer service, unable to upgrade its technology … and unable to maintain compliance programs that both promote and protect taxpayer rights,” Olson says in her preface to the annual report.

“‘Shortcuts’ have become the norm, and ‘shortcuts’ are incompatible with high-quality tax administration,” says Olson, describing her agency as swamped with problems and inadequacies.

The IRS has reduced its employee training budget by nearly 75 percent since FY 2009. Not only has the budget for training drastically declined, the way in which employees receive that training has shifted from face-to-face training to virtual training. In FY 2017, the IRS spent $489 per employee on training (over 0.3 percent of its budget), compared with nearly $1,450 per employee in FY 2009. The Wage and Investment (W&I) Division, which has the largest number of employees of any operating division, spends only $87 per employee per year for training.

New this year from the TAS is a publication known as The Purple Book. Designed to help the House Ways and Means Committee pass “IRS Reform,” the book summaries 50 legislative recommendation to strengthen taxpayer rights and improve tax administration.

“In my opinion, the discussion about IRS funding has largely proceeded based on false choices – either ‘you can’t trust the IRS to administer the tax system so don’t fund it’ or ‘because the IRS doesn’t have enough funding, it can’t do the things it needs to do to administer the tax system.’ The truth lies somewhere in between. The IRS absolutely needs more funding.”

One of the shortcuts is simply not answering the phone – not by policy but by sheer lack of personnel. The IRS foresees answering only 60 percent of calls during the 2018 filing season, and then the odds of getting through to a living being turn even worse. For the year as a whole, only four out of 10 phone calls will reach an IRS agent in 2018.

No law questions after April 17

Since 2014, the IRS has only answered “basic” tax-law questions during the filing season … and no tax-law questions – by phone or in person – after April 17 even though more than 15 million taxpayers file later in the year. In the absence of assistance on the phone or at a Taxpayer Assistance Center, filers have to search through 140,000 IRS web pages. The U.S. Tax Code is 2,600 pages long, not including over 65,000 pages of regulations, revenue rulings and annotated caselaw.

But wait! That’s not all! A 2016-17 TAS survey found that 41 million taxpayers had no broadband access at home, and 14 million had no access at all. And of those who try to create online accounts, only about 30 percent succeed in doing so.

The report doesn’t say so, but the underfunding of the IRS creates an opportunity for tax professionals who are willing to help taxpayers wend their way through labyrinth of rules and regulations. But the journey will not be without its headaches, complaints and trepidations.

The IRS has a competitor

The report warns that in the private sector, if a customer doesn’t like the service at one company, it can take its business to a competitor. The IRS, of course, is the only federal tax collector in town, but that doesn’t mean it doesn’t have a competitor – the tempting option of noncompliance.

“Yes, taxpayers know there may be consequences for blatant noncompliance, but if and when the opportunity presents itself for a taxpayer not to comply in subtle ways that are hard to detect (e.g.reporting cash-economy income), the taxpayer may be more likely to take the opportunity, because there is no ‘brand loyalty’ to the IRS and tax compliance,” the preface states. “Simply put, the IRS hasn’t earned taxpayer loyalty.”

The annual report offers solutions. It identifies the 21 most serious problems affecting taxpayers, and it makes 11 recommendations for corrective legislation. It also discusses the 10 most litigated issues and standalone decisions. A second volume contains seven research studies.

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