The new commissioner of the IRS told Congress Wednesday that his agency is understaffed and underfunded in every one of its mission areas, and its ability to collect revenue and engage in taxpayer assistance will continue to suffer until lawmakers provide more funds.

The IRS opened its systems to E-Filing of 2013 tax returns last week, one week later than usual. The tax agency delayed the filing season because of setbacks in preparations as a result of the 16-day government shutdown and last year’s furloughs during sequestration.

While the decision to start the filing season later was a result of hopefully one- time events, IRS Commissioner John Koskinen said the agency he took over a little more than a month ago faces big-picture problems that directly are tied to declining annual budgets.

“To some extent you get what you pay for,” he told the House Ways and Means Subcommittee on Oversight. “We get more than we probably deserve from these employees, given the stress they’re under. But I think it’s important to understand what we’re not going to get, because we’re not paying for it.”

After last month’s passage of a fiscal 2014 appropriations bill, the IRS’ budget is $900 million (or 7 percent) smaller than it was in 2010.

At the same time, the population of taxpayers has grown by 4 percent, and the IRS workforce has been trimmed by 10,000 employees, including 3,100 enforcement personnel. Koskinen said there’s a direct correlation between those cuts and the amount of tax revenue the IRS can collect.

Less working getting done

Last year, Treasury saw the amount it brought in through enforcement activities drop by $4.2 billion as compared to 2010, and collections resulting from audits were at their lowest level in 10 years. The IRS audited 5 percent fewer individual returns in 2013 than it did in 2012, and it saw a 13 percent drop in audits of business tax returns.

“The inspector general noted last fall that compliance revenues were down by $8 billion in response to the $1 billion in cuts, ” he said. “It’s clear that historically over the last 30 or 40 years that the more funds the IRS has available for enforcement, the more funds it collects. The money we collect just in our compliance activities is between four and five times the entire budget of the IRS. This year, we’re going to do fewer audits, we’re going to have fewer compliance activities. Somehow, that has never resonated. Taxpayer services have also suffered, not because our employees aren’t working hard, but because there are fewer of them.”

While getting an IRS representative on the phone quickly during the peak of tax filing may not be the easiest task even in the best of years, hold times and successfully-connected callers are some key metrics the agency watches to measure the effectiveness of taxpayer services. Those data points now are at troubling levels, Koskinen said.

“Last year, about 40 percent of taxpayers who called the IRS were unable to reach an IRS employee. That’s unacceptable. But we don’t see that number improving much, if at all this year, and we’re worried there will often be extensive wait times for taxpayers trying to get through,” he said. “Expanding our online offerings can only go so far to ameliorate this problem.”

Koskinen insisted the IRS has been trimming costs wherever it can and redirecting funds to its core missions.

It has saved $60 million a year by halting the practice of mailing a printed tax booklet to every taxpayer, since most people never use them.

Apps to relieve some pressure

It also slashed its training and travel spending by more than 80 percent since 2010. But in that case, the commissioner thinks the cuts were probably excessive and need to be partially reversed.

“In both the public and private sectors, one of the first things that always seems to get cut is training, and in my view as a manager, that’s the last thing that ought to get cut,” he said. “Seventy-five percent of our budget is people, so we need to be efficient with those people, we need to train them appropriately so they can deal with the public appropriately, and we need to provide them the resources so that we can increase their effectiveness. We have to invest in our frontline workforce. They are the people who do the work, they can give you the most information about what needs to be done. I’m going to find the money somewhere. It’s not going to be as much as we used to spend, but I think it’s a critical investment for the agency to make.”

Koskinen said the IRS is looking wherever it can to take pressure off of call center employees who deal with taxpayers one-on-one by creating more apps and Web tools so that taxpayers can handle their own information online. There, he said, the agency has had some significant successes.

“If you look at the website today from where it was a year ago, it’s like it’s a different agency,” he said. “We’re trying to make it more user-friendly. For the last couple years we’ve had an app called ‘Where’s My Refund?’ Last year, it got 250 million hits. Now, obviously, some people are checking every day to see where their refund is, but they would be making calls otherwise, so that’s 250 million calls that you didn’t have to entertain, theoretically.”

The IRS, however, also is taking on some new IT costs, and with no clear way to pay for them. Those are mostly associated with the administration of the healthcare subsidies in the Affordable Care Act.

“We are confident, based on some extent on the success we’ve had on other IT initiatives in the last three or four years, that we’re going to be successfully able to execute our responsibilities at the back end. But it comes at a cost, and that cost is under the resources,” he said. “It’s an additional burden that we’re bearing, and we expect it’s going to cost $300 million to $400 million, and it’s going to come out of other IRS activities, because no funding has been provided in our budget.”

Union deal questioned

Koskinen’s testimony came two days after the IRS announced an agreement with the National Treasury Employees Union to restore performance awards to its workers, at a price tag of $43 million.

Rep. Charles Boustany, (R-La.), the chairman of the oversight subcommittee, found that agreement objectionable.

“This comes at a time when every agency is trying to do more with less, and the IRS is blaming declining customer service on insufficient funding,” he said. “Many Americans are surprised to hear that IRS employees are unionized, and even more surprised to hear how much money is being spent on union activity.”

But Koskinen said the IRS thinks the NTEU deal makes sense. For one reason, the union agreed to drop lawsuits and administrative actions it launched last year when the IRS canceled the 2013 performance awards.

“We’re negotiating a new five-year agreement in which we are discussing with them the appropriate amount of time that should be spent on union activities. In the course of that agreement, we reached a settlement with the union that we would settle all of the unfair labor practice grievances, the lawsuits and everything else,” he said. “The performance awards for this year will be paid in the next fiscal year. So, it’s no additional funding cost to the IRS, it settles significant litigation and it’s performance awards made to a set of employees who have had no pay raises for four years up until this year and otherwise have been constrained in terms of limitations on their training, their travel and the support we provided them. Ultimately, I think the morale of the IRS employees is a significant concern to everyone. Federal employees in general have had a tough time the last few years.”

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