The chairman of the House Appropriations Committee said he doesn’t believe the Internal Revenue Service has a funding problem. Instead, Rep. Hal Rogers (R-Ky.) said the IRS has a priority problem.
“After five years of budget cuts or freezes, I would hope the IRS has turned over a new leaf,” said Rogers, during an agency oversight hearing this week. “Commissioner [John Koskinen] frequently complains about the audit rate going down. But my question is: Could the IRS do a better job of selecting which cases to audit, and which ones not to audit?”
But according to the National Taxpayer Advocate, Nina Olson, or the Treasury Inspector General for Tax Administration, J. Russell George, the prioritization argument is beside the point. The strict budget constraints placed on the agency are crippling efforts to conduct the most basic levels of public service. In many ways, they argued, it all boils down to a simple numbers game.
“[The agency’s] performance decline is huge, and results from a combination of more work and reduced resources,” said Olson, who testified at the hearing along with George. “On the workload side, the IRS is receiving 11 percent more returns from individuals, 18 percent more returns from business entities, and 70 percent more telephone calls through fiscal year 2013 than a decade ago, not to mention Affordable Care Act implementation.”
In terms of resources, the IRS saw a $1.2 billion budget cut since 2010. This year, the agency is working with a $10.9 billion budget, and thousands fewer employees. Since fiscal 2012, the agency parted ways with about 6,000 people to bring its workforce level down to its lowest point in a decade.
Those losses include 2,200 revenue agents lost since 2010, who are responsible for reviewing and auditing tax returns.
A numbers game impossible to win
As the federal agency responsible for collecting the money the government uses to function, the lower performance, fewer audits, and inability to modernize outdated IT systems creates a ripple effect that touches all other federal agencies.
It also increases the risk of fraud among the general public, as this year the IRS expects to complete the fewest audits in over a decade. That risk is primarily centered around people who operate a business that deals in cash, with income or expenses not independently reported to the IRS. In those cases, the chances of getting caught are lower than they have been in years.
“The math is pretty simple,” Koskinen said in a speech to the New York State Bar Association. “There are fewer audits because we have fewer auditors. Audits fell in virtually every individual category and across income levels. This continues a long-term trend that carries serious implications for our tax system and the nation.”
But so far, those stark expectations aren’t making much of an impact among some Republicans in Congress. Some have vowed to keep cutting IRS funding as a way to stifle implementation of the health care law. Some point to political targeting of certain non-profits as proof the IRS doesn’t deserve trust or deserves agencywide punishment.
“We deliberately lowered the IRS funding to make them think twice about what they are doing and why they are doing it,” said Rogers. “They don’t have a dime to spare on anything frivolous or foolhardy or mediocre. The IRS should and must focus on the most important and most egregious, and the most in need.”
Koskinen said that approach simply can’t work. In fact, it does the exact opposite. Concerning the Affordable Care Act, he said the IRS is required to enforce the law, so other areas will have to be cut, including taxpayer services and enforcement.
The auditors’ auditor, TIGTA’s George, echoed that sentiment. A lower budget doesn’t automatically lead to a more efficient organization. Instead, it just paralyzes the agency.
“We’ve reported that a trend of lower budgets and reduced staffing has affected the IRS’ ability to deliver its priority program areas,” said George. “Including customer service and enforcement.”
The weakest who suffer the most
In the eyes of Olson, the biggest problem facing the agency isn’t investigative malfeasance, or its requirement to follow the comparatively few laws that meander through the legislative system (in a historical sense).
“In my 2014 annual report to Congress, I designated inadequate taxpayer service as the number one, most serious problem facing taxpayers,” said Olson. “This year, taxpayers are receiving the worst levels of taxpayer service since at least 2001, when the IRS implemented its current performance measures.”
So far this year, only 43 percent of American citizens who called the IRS for help reached a representative by phone. And of those, the average time spent on hold was about half an hour.
“By comparison, during the same period last year, 77 percent of taxpayers got through, and waited on hold an average of 10 minutes,” said Olson. “And it is no longer preparing tax returns for the most vulnerable taxpayer populations, namely the elderly, the disabled, and the low income.”
President Barack Obama has proposed a $12.9 billion budget for the IRS in the coming budget year — about an 18 percent increase.