The Internal Revenue Service’s plan to address a mounting workload with shrinking resources could have chilling effects on its relationship with its most important customer: the American taxpayer.
In its 2015 annual report to Congress, the National Taxpayer Advocate warned that the IRS needs to weigh the consequences of implementing a number of proposed service changes in its “future state vision.”
“Every day, the IRS faces the daunting task of juggling an increasing and diverse workload involving both revenue collection and benefits payments, with the relentless demands of doing everything in as cost-efficient a manner possible,” wrote National Taxpayer Advocate Nina Olson in the report. “But for the IRS to do its job well, it must start from the perspective of what government is about — namely, it is of the people, by the people, and for the people. The government is funded by taxes paid by the people. Therefore, the future state vision of the IRS needs to be designed around the needs of the people.”
But the report, which the independent watchdog released Jan. 6, warned the future vision unfairly discourages, and could penalize, compliant taxpayers.
“The IRS future state vision redefines tax administration into a class system, where only taxpayers who are the most noncompliant or who can ‘pay to play’ will receive concierge-level service or personal attention,” Olson wrote in her executive summary. “The compliant or trying-to-comply taxpayers will be left either struggling for themselves or paying for assistance they formerly received for free from the IRS.”
Facilitate voluntary compliance by empowering taxpayers with secure innovative tools and support.
Understand non-compliant taxpayer behavior and develop approaches to deter and change it.
Leverage and collaborate with external stakeholders.
Cultivate a well-equipped, diverse, skilled and flexible workforce.
Select highest value work using data analytics and robust feedback loops.
Drive more agility, efficiency and effectiveness in IRS operations.
Strengthen cyber defense and prevent identity theft and refund fraud.
“Reading between the lines of the IRS future state vision, the IRS appears to replace traditional IRS employee-to-taxpayer interaction with online and third-party interactions,” Olson wrote. “That is, the vision essentially eliminates IRS-taxpayer personal interaction except in the context of enforcement actions.”
That means someone trying to communicate with the IRS will be directed to a website rather than a real person, the report said. And while it is understandable that the agency is trying to do as much as it can with limited financial resources, the IRS must remember that taxpayers “are not returns — they are people (or businesses run by people). If the taxpayer has a problem or needs some particular information, that’s where the system (and the vision) breaks down.”
That’s not to say the future vision isn’t a good step in the right direction, the watchdog reported. Shifting some aspects of taxpaying, communication and information to the Web is a positive thing. But the taxpayer advocate’s recommendation is for Congress to hold hearings throughout the next several months as well as solicit input from the public on the future vision plan.
Problem programs: whistleblowers, ID theft, ‘false positives’
Other problems the tax advocate highlighted as the most serious ones afflicting the agency include:
The IRS may add user fees to help cover funding gaps without considering the implication on voluntary compliance or the financial burden to taxpayers.
The Service’s Whistleblower Program doesn’t meet the needs of whistleblowers to provide information during long processing times and does not sufficiently protect taxpayers’ confidential information from re-disclosure by whistleblowers.
The process for helping identity theft victims is burdensome and delays refunds.
Third party contact procedures don’t always follow the law and may hurt taxpayers’ businesses and reputations.
The IRS grants uncredentialed preparers access to an online taxpayer account system, possibly creating security risks.
Hundreds of thousands of legitimate tax returns are filed and then returned incorrectly flagged, and often refunds are delayed because of an increase in the rate of “false positives” within the agency’s Pre-Refund Wage Verification Program.
In a statement from National Treasury Employees Union, National President Tony Reardon said the organization was concerned about “the impact on voluntary compliance levels of any further decline in the ability of taxpayers to interact with trained personnel.”
“[Olson’s] report underscores how important it is for taxpayers who have questions to be able to interact with trained and knowledgeable IRS employees. Improving the IRS’ online offerings is important, but online assistance is no substitute for telephone or face-to-face contact when taxpayers who are trying to be compliant have questions regarding our very complex tax code,” Reardon said. “The bottom line is this: Taxpayers who contact the IRS to meet their tax obligations should have their questions answered by knowledgeable IRS employees in a timely manner.”
“In addition, Olson rightly notes replacing the traditional IRS employee-to-taxpayer interaction with online and third-party interactions seriously undermines taxpayer protections and disadvantages taxpayers who lack the resources to pay for assistance,” Reardon added.
IRS Commissioner John Koskinen last year told lawmakers the agency’s funding has dropped by $1.2 billion since 2010. Koskinen said unfunded mandates, such as the Affordable Care Act and the Foreign Account Tax Compliance Act, also put a burden on his agency’s operations, dismal customer service and tax enforcement during the 2015 filing season.