In her report released June 30, Advocate Nina Olson repeated an earlier assertion that the revenue service "should generally be exempt from any budget freeze or reduction."
She said, "IRS is falling backward in its commitment to taxpayer service and being a customer-focused organization" at a time when it is expanding into new areas such as implementation of the health care law. She warned that "it will turn to more automation and less interaction with taxpayers" on their specific tax circumstances.
The House appropriations committee on June 23 approved a $19.9 billion financial services spending bill that would cut about 8.5 percent from a group of agencies Republicans have long targeted.
"This bill makes smart, sensible reductions in nearly all areas," said House Appropriations Chairman Hal Rogers, R-Ky. "Where necessary, we have cut funding for ineffective and unproven programs and have made strides to prevent taxpayer dollars from slipping through the cracks, lost to redundant or wasteful programs. This includes cutting excess spending to the IRS, limiting funds for the new Bureau of Consumer Financial Protection, and terminating the failed Home Affordable Modification Program and the flawed Consumer Product database, both of which the House has already voted to eliminate."
The "National Taxpayer Advocate's Fiscal 2012 Objectives Report to Congress" praised the IRS for implementation of Congress' repeal of the new health care reform law's Form 1099 reporting requirement for small businesses, saying the new paperwork "would have imposed substantial burden on business taxpayers without a corresponding compliance benefit."
The advocate also cited improvement in the service's efforts to convert correspondence and forms into plainer English, a project whose main push was completed at the end of 2009, and on which the Office of the Taxpayer Advocate assisted.
But she criticized the IRS for failing to program its computer systems in time to allow smooth processing of the first-time homebuyer credit in 2010, citing "a massive breakdown in the return filing process for these taxpayers."
She also faulted the agency's contingency planning during this spring's threatened shutdown of the government.
"Although the plan took into consideration the special circumstances presented during a tax filing season, and identified excepted activities pertaining to the protection of government property," Olson wrote, "it did not provide protections for taxpayers' lives and property."
In particular, the plan focused on how effective the agency was on protecting the processing of electronic remittances, but it "made no allowance for processing paper tax returns and issuing related refunds, providing taxpayer account assistance, or resolving lien issues," the report said.
Regarding implementation of the health care law, Olson expressed concern that "IRS will be the face of health care for many taxpayers, but will not be the decision-maker in most circumstances." She promised to help develop a communications strategy to make taxpayers aware of coming health care changes.
The advocate's report was welcomed by the National Treasury Employees Union, which warned the House panel's budget would mean the loss of 4,000 IRS jobs. "It simply makes no sense to slash the budget of the agency that generates 93 percent of the government's revenue at a time when reducing the deficit is a national priority," said NTEU President Colleen Kelley.
"In recent years, the IRS has been given more and more tasks, but it is not receiving the resources it needs to fulfill these tasks without cutting corners," she said, adding, "when the IRS cuts corners, taxpayers can be harmed and revenue collection may suffer."