Good luck getting your tax questions answered by the IRS this tax season or the next one when the tax cuts passed by Congress will be in effect. The IRS lacks the funding to “provide acceptable levels of taxpayer service,” according to the annual report from the agency’s National Taxpayer Advocate, released just two weeks after Congress passed tax legislation that will add $1.5 trillion to the federal deficit over 10 years.
“The IRS absolutely needs funding,” according to the preface of the advocate’s report. “It cannot answer the phone calls it currently receives, much less the phone calls it can expect to receive in light of tax reform, without adequate funding.”
The agency estimates it will answer only six out of 10 taxpayer calls this coming tax filing season and less than 40% of calls with a “live assistor” during the full 2018 fiscal year, which runs from Oct. 1, 2017, through Sept 30, 2018. After the April tax filing deadline, the IRS can’t answer any tax law questions by phone or at its taxpayer assistance centers, which “does not bode well for taxpayers seeking information about the major tax law changes and their impact on 2018 federal income tax returns,” according to the report.
(Related: IRS Releases Tax Withholding Tables for 2018)
The report, by Taxpayer Advocate Nina E. Olson, shows that every year since 2011, the IRS has closed offices and reduced the number of its appeals officers, revenue officers, revenue agents, taxpayer assistance centers and reps and advocates in its taxpayer advocate service. Since fiscal 2009, its employee training budgets have been cut nearly 75%.
The agency estimates it will need about $495 million in additional funding for fiscal years 2018 and 2019 just to implement the new tax law, which includes programming and systems updates, answering taxpayer phone calls, publishing new forms, revising regulations and issuing guidance, training employees and developing the capacity to verify compliance with new documentation requirements.
Meanwhile, rather than hiring more employees to answer the volume of phone calls and correspondence from taxpayers and to staff for person-to-person contacts, the IRS has focused its technology efforts on creating online accounts, favoring automated and digital applications, when 41 million taxpayers had no broadband access and 14 million had no internet access in their homes, according to an IRS 2016-2017 survey. “Taxpayers need ongoing access to all customer service methods — online, phone, in-person — instead of promoting the fiction of a Future State where almost everything is done online,” according to the Taxpayer Advocate report.
Another problem it found: private debt collection, which was instituted last April following a Congressional mandate. The agency spent $20 million in the last fiscal year on private debt collection which yielded only $6.7 million in back taxes, according to the Taxpayer Advocate. Moreover, it paid commissions to collectors on collections it had made without their help, and over 40% of the taxpayers who filed returns after their debts were assigned to a collection agency had incomes below 250% of the federal poverty level (19% were below the federal poverty level). Their returns would have merited a hardship status if they were handled directly by the IRS.
On the flip side for taxpayers, though not the government, the IRS is conducting fewer in-person audits, which the Taxpayer Advocate terms “real audits,” because the agency has reduced the number of field revenue agents. Those audits have dropped to below 1% of returns, but if automated, centralized or correspondence-based audits are counted, the audit rate is 6.2%.
Taxpayers found to owe more than $50,000, adjusted annually for inflation, including interest and penalties, shouldn’t rest easy, however. Beginning early this year the IRS can deny a passport application or revoke a current passport of such taxpayers, based on a Congressional mandate. Currently an estimated 270,000 are vulnerable, and about 1% are expected to be targeted when the program is implemented, focusing on passport applications not revocations, according to the Taxpayer Advocate report. It recommends that the agency take no action on taxpayer passports until adequate advance notice is given.
The agency makes many other recommendations in its extensive report, which includes for the first time a Purple Book itemizing 50 legislative recommendations to strengthen taxpayer rights and improve administration of the voluntary federal tax system.
It also includes recommendations to address 20 most serious problems (MSPs) described the report. These include proposals to:
- develop a comprehensive strategy to improve telephone service, which would incorporate qualitative measures, a hardware upgrade and 311 system directing taxpayers to an appropriate office
- exclude commissions on payments that taxpayers make as a result of interaction with the agency, rather than with private collectors
- maintain an omnichannel approach to taxpayer service delivery to meet the needs and preferences of taxpayers who cannot or prefer not to use the online account application process
- increase in-person trainings to allow for more effective training in field offices as well as hours per employee, especially in mission-critical jobs
- expand the agency’s cybersecurity summit to include participants from the financial, banking, commercial, and consumer and privacy advocate sectors and broaden its scope to include non-identity theft refund fraud.
— Related on ThinkAdvisor:
- The Tax Cuts and Jobs Act: An Advisor’s Guide
- How Tax Bill Impacts 4 Key Areas for Advisors & Clients