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National Taxpayer Advocate Delivers Annual Report to Congress

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National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Taxpayer Service and Taxpayer Bill of Rights

IR-2015-02, Jan. 14, 2015

WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her 2014 annual report to Congress, which expresses concern that taxpayers this year are likely to receive the worst levels of taxpayer service since at least 2001 when the IRS implemented its current performance measures.  The report recommends that Congress enact a principles-based Taxpayer Bill of Rights, adopt additional safeguards to make those rights meaningful, and provide sufficient funding to make the “Right to Quality Service” a reality.

In the preface to the report, Olson emphasizes four points:

  • “First, the budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively;
  • “Second, the lack of effective administrative and congressional oversight, in conjunction with the failure to pass taxpayer rights legislation, has eroded taxpayer protections enacted 16 or more years ago;
  • “Third, the combined effect of these trends is reshaping U.S. tax administration in ways that are not positive for future tax compliance or for public trust in the fairness of the tax system; and
  • “Fourth, this downward slide can be addressed if Congress makes an investment in the IRS and holds it accountable for how it applies that investment.”
  • http://static01.nyt.com/images/2015/01/15/business/15tax2-web/15tax2-web-master180.jpg
  • Nina E. Olson, leader of the Taxpayer Advocate Service. Credit Taxpayer Advocate Service

The report says the combination of the IRS’s increasing workload, the erosion of public trust occasioned by the IRS’s use of “tea party” and similar terms in screening applicants for tax-exempt status, and the sharp reduction in funding have created a “perfect storm” of trouble for tax administration and therefore for taxpayers.  “Taxpayers who need help are not getting it, and tax compliance is likely to suffer over the longer term if these problems are not quickly and decisively addressed,” Olson wrote.

The report also urges Congress to enact comprehensive tax reform, pointing out that simplification would ease burdens on taxpayers and the IRS alike.

TAXPAYER SERVICE LEVELS EXPECTED TO FALL TO NEW LOWS

The report describes the decline in taxpayer service in detail and attributes the decline to a combination of more work and reduced resources for the IRS.

Scope of Taxpayer Service Needs.  Nearly 200 million Americans interact with the IRS each year, more than three times as many as any other federal agency.  (Individuals file nearly 150 million returns, including about 50 million joint returns.)  Because of the complexity of the tax code, large numbers of taxpayers turn to the IRS for assistance.  The IRS typically receives more than 100 million telephone calls, 10 million letters, and 5 million visits at its walk-in sites from taxpayers each year.

Decline in Taxpayer Service Levels.  IRS taxpayer service reached its high-water mark in fiscal year (FY) 2004.  In that period, the IRS answered 87% of calls from taxpayers seeking to speak with an assistor, and hold times averaged 2.5 minutes.  The IRS also responded to a wide range of tax-law questions, both on its toll-free lines and in its roughly 400 walk-in sites, prepared nearly 500,000 tax returns for taxpayers who requested help (particularly low income, elderly, and disabled taxpayers), and maintained a robust outreach and education program that touched an estimated 72 million taxpayers.

By comparison, the IRS’s diminished service expectations for FY 2015 are as follows:

  • The IRS is unlikely to answer even half the telephone calls it receives, and levels of service may average as low as 43%.
  • Taxpayers who manage to get through are expected to wait on hold for 30 minutes on average and considerably longer at peak times.
  • The IRS will answer far fewer tax-law questions than in past years.  During the upcoming filing season, it will not answer any tax-law questions except “basic” ones.  After the filing season, it will not answer any tax-law questions at all, leaving the roughly 15 million taxpayers who file later in the year unable to get answers to their questions by calling or visiting IRS offices.
  • Tax return preparation assistance has been eliminated.

More Work, Reduced Resources.  On the workload side, the IRS is receiving 11% more returns from individuals, 18% more returns from business entities, and 70% more telephone calls (through FY 2013) than a decade ago.  During the upcoming filing season, implementation of the Patient Protection and Affordable Care Act and the Foreign Account Tax Compliance Act are both expected to add considerable new work.

On the resources side, the IRS’s budget has been reduced by about 17% in inflation-adjusted terms just since FY 2010.  As a consequence, the IRS has already reduced its workforce by nearly 12,000 employees and projects further reductions will be needed during FY 2015.  In addition, the IRS has reduced the amount it spends on employee training since FY 2010 by 83%.  These cutbacks leave the IRS with a shrinking workforce whose employees are less equipped to do their jobs.

“Like any agency, the IRS can operate more effectively and efficiently in certain areas,” Olson wrote.  “However, we do not see any substitute for sufficient personnel if high-quality taxpayer service is to be provided.  The only way the IRS can assist the tens of millions of taxpayers seeking to speak with an IRS employee is to have enough employees to answer their calls.  The only way the IRS can timely process millions of taxpayer letters is to have enough employees to read the letters and act on them.  And the only way the IRS can meet the needs of the millions of taxpayers who visit its walk-in sites is to have enough employees to staff them.”

Olson urged Congress and the IRS to work together to ensure that taxpayer needs are met.  “We do not think it is acceptable for the government to tell millions of taxpayers who seek help each year, in essence, ‘We’re sorry.  You’re on your own,’” the report says.