Gearing up to process more than 230 million fiscal 2014 tax returns, the Internal Revenue Service appears to be creaking under a heightened workload and reduced staff.
Commissioner John Koskinen on Tuesday sent employees an email warning of “difficult steps” ahead as the agency responds to Congress’ recent budget cut of $346 million that, factoring in inflation and mandatory costs, leaves the IRS at its lowest funding level since 1998.
The result, according to Koskinen, the National Taxpayer Advocate and the National Treasury Employees Union, will be fewer audits, longer wait times for taxpayers phoning for assistance, a loss of 3,000 and 4,000 full-time employees due to a hiring freeze and attrition, and preparations for a possible two-day agency shutdown.
“This year we are looking at a situation where realistically we have no choice but to do less with less,” Koskinen wrote. Enforcement cuts of more than $160 million in fiscal 2015 mean “the government will lose at least $2 billion in revenue that otherwise would have been collected.”
Specifically, $200 million in cuts to the information technology budget, the commissioner said, will “hurt taxpayer service and cost-efficiency efforts as well as reduce outside contractor support for critical projects.” New protections against identity theft will be delayed, as will efforts to save money by moving data to the cloud and to execute planned modernization of aging computer systems. At least 46,000 fewer audits will be conducted on individuals and businesses, he said. Cuts in overtime pay will mean that taxpayers will have to wait an extra week or more for refunds. As many as half of all taxpayers who call for assistance will not get through, compared with 64 percent who got through last year, Koskinen said.
“Even with all of these reductions, we still face a remaining budget shortfall,” he added. “Unfortunately, this means at this time we need to plan for the possibility of a shutdown of IRS operations for two days later this fiscal year, which will involve furloughing employees on those days.” The agency will soon begin talks with NTEU to plan for this eventuality in compliance with “our collective bargaining obligation,” the commissioner said.
NTEU National President Colleen Kelley in a statement said, “The nation, along with the IRS workforce, is suffering from the $1.2 billion worth of budget cuts the IRS has endured since fiscal year 2010. It is appalling to me that only half of the callers will be able to get through to a customer service representative during this filing season, that Taxpayer Assistance Centers will be forced to turn people away and that millions of people who file paper returns will see their refunds delayed.”
In an annual report released on Wednesday, National Taxpayer Advocate Nina Olson echoed the commissioner’s concerns. “Due to a widening imbalance between the IRS’ increasing workload and its diminishing resources, taxpayer service levels have been declining,” she wrote. The IRS now typically receives more than 100 million telephone calls, 10 million letters, and 5 million visits from taxpayers each year, but in fiscal 2015 “taxpayers are likely to receive the worst levels of service since the IRS implemented its current performance measures in 2001, with more than half of the calls going unanswered and hold times expected to exceed 30 minutes on average (considerably longer at peak times),” she said. “The sheer complexity of the tax code increases to the demand for assistance and adds another significant barrier to tax compliance.” The IRS has reduced the amount it spends on employee training since fiscal 2010 by 83 percent.
Olson also warned that declining service 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.”
The National Association of Enrolled Agents, a group of paid tax return preparers, also sounded an alarm about the cuts. “Your odds of getting through to the IRS Help Line while you’re still in your youth have gone from slim to none now that IRS funding has been reduced (once again) to 3 percent less than last year and $1.5 billion below the president’s requested amount,” the group said in a statement. “No crystal ball is needed to see that administering more than 40 new provisions under the Affordable Care Act for the first time this year is going to call for more IRS staff standing by to answer questions, not fewer.”
Republicans in Congress have cited the IRS’ alleged targeting of nonprofits seeking tax-exempt status as the reason for cutting its budget. (The Senate Finance and House Ways and Means committee staffs on Wednesday did not immediately respond to requests for comment on the impact of the cuts.)
In her recommendations to Congress, the taxpayer advocate acknowledged the agency’s mishandling of primarily Tea Party applications seeking recognition as social welfare groups. But she argued that Congress can address the agency’s downward slide in customer service if it “makes an investment in the IRS” and holds the agency accountable for how it applies the investment.
“The IRS will never be a beloved federal agency, because it is the face of the government’s power to tax and collect,” Olson wrote. “But casting the entire agency and all its employees as an out-of-control agency in response to the actions of a few, no matter how deplorable those actions may be, is harmful to taxpayers and tax compliance. We need to recognize that the IRS and its employees play a vital role in the economic welfare of this country.”