IRS chief John Koskinen testifies on Capitol Hill about the agency's budget.

IRS chief John Koskinen testifies on Capitol Hill about the agency's budget. Susan Walsh/AP

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But filing season is going "swimmingly" despite predictions, Koskinen says.

A brain drain and budget cuts are endangering the long-term manageability of the Internal Revenue Service, its commissioner warned on Tuesday, though employee handling of the current tax filing season is going “swimmingly,” contrary to expectations.

“The underfunding of the agency is the most critical challenge facing the IRS today,” Koskinen said in a speech to the National Press Club. “As the serious ramifications of five years of budget cuts become increasingly visible, I don’t want anyone to say that we didn’t warn you in advance.”

Reduced hiring of extra seasonal help this filing season has brought IRS call centers’ level of service below 40 percent, meaning “six out of every 10 people who call cannot reach a customer service representative,” he said. “That is truly an abysmal level of service.”

Budget cuts totaling $1.2 billion over the past five years have also crimped modernization of information technology, some applications of which were “running when John F. Kennedy was president,” Koskinen said. “The only good thing you can say about them is that the code they use has been out of date for so long that it has the unintended effect of creating problems for hackers.”

Koskinen also warned that more than half the IRS’ current 87,000 employees are over age 50, with more than 25 percent eligible to retire next year. “We only have about 1,900 employees under age 30 – and about half of those are only part-time,” he said. “Essentially, the IRS is facing its own version of the Baby Bust” of trained professionals. This situation, made worse by the budget cuts, “makes it extremely difficult, if not impossible, for the IRS to properly develop its next generation of leaders,” Koskinen added.

The portrait he painted of the agency was also one of pride in progress. So far this filing season, the IRS has issued more than 71 million refunds, assisted 24.2 million taxpayers on telephone help lines and helped 1.3 million people who visited Taxpayer Assistance Centers around the country, he reported. The IRS website has expanded to draw 231 million visits. The agency’s 100 tax preparation videos on YouTube have attracted 9 million views. And the backlog of applications from nonprofits for tax-exempt social welfare status—the source of the political targeting controversy of roughly the past two years—has been sliced from 60,000 to zero, Koskinen said.

“I wanted to give you this picture of the IRS today because I think it has been obscured by the intense focus on the problems of the past,” he said, mentioning “overspending on conferences, making some ill-advised videos and, of course, inappropriate scrutiny of applications from groups seeking social welfare status and others.”

He continued:  “The criticism of these areas is absolutely deserved. But what gets lost is that these mistakes occurred several years ago, and we have taken concrete steps to address them.”

Responding to questions, the commissioner said he is confident that there will be no repeat of the inappropriate scrutiny of nonprofits based on their political rhetoric because “we will hear from employees” if such things recur. “There’s a commitment to being in tax administration, not politics,” he said.

To cope with the tight budgets, Koskinen said, his team is continuing to train employees and take advantage of an Office of Personnel Management phased retirement program for mentoring and working with the IRS’ Human Capital Organization. “I have advised our senior leadership that this is the last year that we will deal with budget constraints by freezing or severely limiting new hires into the agency,” he said. “We have interesting and exciting career opportunities to offer to young people beginning their careers, and we need to encourage more of them to join the agency." 

Asked about inappropriate use of personal email for official business, Koskinen said he knows how well the IT staff are monitoring the issue from the fact that he himself was contacted after he emailed some draft testimony to his home account for evening polishing. (He now has an IRS computer and printer at home.) “I can’t guarantee that no one among 87,000 employees will use personal email,” he added. “But we are keeping a close watch.”

In response to a question about who gets audited, Koskinen said the million examinations expected next year will be done “across the income spectrum, according to a review exam plan, no matter who you are or what political party you’re in.” While a higher percentage of higher-income people will draw an audit, he added, “no individual at IRS can cause an audit—it takes three. If you are trying to be compliant, then we will help you.”

Addressing the problem of identity theft with intention to claim other taxpayers’ refunds, Koskinen noted that the agency this month had an “unprecedented sit-down meeting with the leaders of the software and tax industry and state tax administrators” to boost a public-private partnership to tackle the problem.

Another tool that could help combat identity theft is in the works, one that would also boost efficiency and ease taxpayer frustration. “Our goal is for taxpayers to have a more complete online experience for all their transactions with the IRS,” he said. “People should expect the same level of service when dealing with the IRS in the future as they have now from their financial institution, whether it’s a bank, brokerage or mortgage company.”