Amid rumors that the budget-beleaguered Internal Revenue Service is again on the chopping block, officials say they are forging ahead on a strategy for securely sharing data with agency partners.

John Dalrymple, deputy commissioner for services and enforcement at the IRS, said the agency is “getting pretty comfortable” when it comes to attacks at its system perimeter, so it is turning its focus farther outward.

“We’re really concentrating on the partners that we have that we share data and information back with,” Dalrymple said March 8, after testifying on Capitol Hill. “That’s the vulnerability that we’re attacking now.”

Dalrymple didn’t comment on any specific budget cut that’s been reported — The New York times said by 14 percent — but no matter the amount, a cut of any kind “would be devastating.”

“We’ve sustained the largest percentage of budget cuts of any federal agency since 2010 to present, so literally any budget cut for us would be devastating, and it would affect service for taxpayers. It would absolutely affect all the compliance work we do;  audits, collections work we do, etc., would all be impacted by that. We are not at a point where there is any fat left to cut at the IRS, in my view,” he said.

Secure data sharing, along with improving customer service and strengthening defenses against identity theft were the topics of discussion at a joint House subcommittee hearing at which Dalrymple testified.

Criticism for the tax agency largely fell along party lines, with Republican members of the two subcommittees expressing their frustration that the agency continues to ask for resources despite a perceived failure to properly use what’s given to it.

The agency has lost about 17,000 net employees in the past six or seven years, coupled with a nearly $1 billion drop in its budget since 2011.

Congress gave $290 million in extra funding for the fiscal 2016 year, more than half of which went to hiring 1,000 extra temporary employees to answer phones.

“As a result, the average level of service on our toll-free lines during the 2016 tax filing season exceeded 70 percent, compared to the average of 37 percent during the fiscal 2015 filing season,” Dalrymple stated in his written testimony. “When the temporary employees went off rolls at the end of the 2016 filing season, phone LOS [level of service] dropped, and our average for all of fiscal 2016 ended up at 53 percent, which nonetheless was still higher than 2015.”

That same 2015 season, IRS transferred $30 million from the enforcement category under its budget, to taxpayer service.

“Why didn’t you ask for more?” Rep. Jim Jordan (R-Ohio) asked. “Why didn’t you ask more often to offset this terrible performance?”

“There’s not enough money to go around for anything,” Dalrymple said.

“Taxpayer service has been in some instances abysmal, the [IRS] commissioner was right about that,” he said. “We haven’t been able to answer the telephones when we should, we haven’t been able to answer correspondence at the speed we should, we haven’t been able to develop online services at the rate we should for taxpayers. Audit rates are down dramatically, our collections are down over time.”

Dalrymple said the tax gap between what the IRS is owed and what it actually collects is about $450 billion per year.

Rep. Jody Hice (R-Ga.) expressed his displeasure that during the 2012 filing season, 62 IRS employees hired for customer service work were shifted over to handle union official time, despite issues with customers getting through on agency phone lines.

“You don’t have a resource problem, you have a waste problem,” Hice said. “You’ve got people right there who were hired to do the job, who were going off doing union work rather than the job for which they were paid to do. That seems awfully wasteful to me, on the backs of taxpayers and on the backs of people who need answers.”

IRS should do some ‘soul searching’

In his written testimony, Dalrymple defended the progress IRS has made in recent years, including in the current 2017 filing season.

Dalrymple said IRS stopped more than $6.5 billion in fraudulent refunds from going out to identity thieves in fiscal 2016. According to the IRS, the number of people who reported they were victims of identity theft dropped 46 percent between calendar year 2015 and 2016 — 698,700 people down to 376,000 people.

“Several years ago, it was taking us an average of 300 days to close a case, but more recently the IRS has been meeting its goal of resolving cases in an average of 120 days or less,” Dalrymple said in his written statement. “Additionally, case inventory for identity theft victims dropped from about 95,000 at the end of fiscal 2015 to 34,300 at the end of fiscal 2016. As of last month, the number was down to 28,900.”

IRS in December launched an app on IRS.gov that lets taxpayers obtain basic account balance information. The IRS is also in the process of testing a secure online chat capability.

The IRS is working to extend the appointment process for visiting a Taxpayer Assistance Center, which can cut back on long lines and wait times for customers.

IRS also has Virtual Service Delivery, or a secure online video tool that allows taxpayers to talk to someone in lieu of a visit to a TAC.

In his testimony to Congress, Russell Martin, assistant inspector general for returns processing and account services at the Treasury Inspector General for Tax Administration, said there is a risk of unauthorized access to tax accounts, when IRS expands its online tools.

“Therefore it is critical that the methods the IRS uses to authenticate individuals’ identities provide a high level of confidence that tax information and services are provided only to individuals who are entitled to receive them,” Martin said.

Dalrymple said the IRS has done a lot around authenticating taxpayers.

“I’m not going to talk a lot about what that is, because it’s secret, but we are incredibly concerned about how innovative the people trying to penetrate our systems are,” he told reporters after the hearing.

In November, IRS announced a series of efforts to reduce identity theft and tax fraud, including the opening of an Identity Theft Tax Refund Fraud Information Sharing and Analysis Center (ISAC), expanding the  W-2 form verification code initiative from 2 million forms to 50 million forms, and the introduction of new data elements — pieces of digital information from a tax return.

Rep. Gerry Connolly (D-Va.) expressed his hope that congressional members concerned about customer service and things like legacy systems breaking and IRS computers being outdated, “maybe we could make a smart investment in IT to make the IRS more efficient,” he said.

Rep. Raja Krishnamoorthi (D-Ill.) suggested IRS do some “soul searching” and look at private-sector best practices when it comes to phone service.

The Government Accountability Office’s Acting Director for Strategic Issues Jessica Lucas-Judy said IRS had completed a benchmarking study and GAO was currently reviewing it.

“I would respectfully submit, there has to be a bigger emphasis on that,” Krishnamoorthi said in reference to best practices and benchmarking. “Given how people perceive government and the IRS, we can’t afford for their trust to further erode.”

‘Devastating’ cuts

The IRS this 2017 filing season expects to collect about 152 million individual tax returns.

The 2017 filing season by the numbers (as of Feb. 24):

• More than 52.3 million individual returns received
• More than 41.3 million refunds issued worth a total of about $127 million
• $3,071 average refund total

Dalrymple said the anticipated average LOS for 2017 phone calls will be about 75 percent, in part because there were no major tax law changes, and so far “the 2017 tax filing season has been a smooth one.”

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