National Taxpayer Advocate Nina Olson released her
The release of the report itself was delayed by a month because of the government shutdown, Olson noted. The IRS opened the 2019 filing season shortly after the shutdown ended. A comparison of IRS telephone service during the first week of this year's filing season and the first week of last filing season indicated taxpayers were having more difficulty getting help from the IRS this year. During the first week of last year’s filing season, the IRS answered 86 percent of calls routed to an Accounts Management telephone assistor, and the average wait time was about four minutes. During the first week of this year’s filing season, the IRS answered only 48 percent of its calls, and the average wait time was 17 minutes.
Among taxpayers calling the IRS’s Automated Collection System line, 65 percent got through and waited an average of 19 minutes last year. This year, only 38 percent of calls were answered, and the average wait time was 48 minutes. Among callers looking for assistance on the IRS’s Installment Agreement/Balance Due telephone line, the IRS answered 58 percent of its calls, with an average wait time of 30 minutes during the first week of the filing season last year. This year, the IRS answered only 7 percent of its calls, and taxpayers who got through had to wait an average of 81 minutes to speak with someone who could help.
The IRS also had millions of pieces of mail waiting to be opened until the shutdown ended. By January 24, the IRS had more than 5 million pieces of mail waiting to be processed. The agency also had 80,000 responses to fiscal year 2018 Earned Income Tax Credit audits that had not been addressed (likely causing eligible taxpayers to have their legitimate EITC claims frozen during the 2019 filing season); and it had 87,000 amended returns waiting to be manually processed.
“Make no mistake about it,” Olson wrote. “These numbers translate into real harm to real taxpayers. And they represent increased re-work for the IRS downstream, at a time when the IRS is already resource-challenged. The IRS will be facing tough decisions in light of the shutdown’s impact.”
Olson expressed her appreciation to the IRS workforce on a special dedication page in the report. “Most IRS employees experienced financial challenges as a result of missing two pay checks,” she wrote. “Yet when the shutdown ended, IRS employees returned to work with energy and generally hit the ground running. The IRS faces many challenges as an agency — and this report documents many of them — but the dedication of the IRS workforce is a notable bright spot.”
Legislative Recommendations to Congress
Also on Tuesday, Olson released the second edition of the National Taxpayer Advocate’s
The biggest section of the report, which identifies at least 20 of the most serious problems taxpayers face in their dealings with the IRS, is titled, “The Taxpayer’s Journey,” and is organized sequentially to track a taxpayer’s interactions with the tax system from start to finish. Among other issues, it addresses the ability of taxpayers to obtain answers to tax-law questions, tax return filing, notices, audits, collection actions and Tax Court litigation. The report also contains some illustrated “road maps” depicting the process.
“One of our goals in creating these roadmaps was to help readers understand the complexity of the taxpayer journey,” Olson wrote. “It was challenging for us to create these roadmaps and will probably be difficult for readers to follow them, which hints at the extreme frustration many taxpayers experience when they have to interact with the IRS.”
Aging Computers
The report’s primary legislative recommendation to Congress is to provide far more funding for the IRS to replace its antiquated computer systems. The IRS systems that hold the official records of taxpayer accounts — the Individual Master File and the Business Master File — date back to the Kennedy administration in the 1960s and are the oldest major IT systems still in use in the federal government, Olson noted.
Making matters even worse, taxpayer information is stored in over 60 separate case management systems that generally don’t communicate with each other. There’s no database that holds or provides a 360-degree view of the taxpayer’s account and interactions with the IRS. As a result, although the IRS is trying to create taxpayer-friendly online accounts, the report said the inability to pull data from a consolidated case management system poses a significant obstacle.
The report pointed out the IRS lacks an enterprise case selection system, so it can’t be sure it’s focusing on the right taxpayers or the right issues in its outreach, audit and collection activities. A key measure of audit effectiveness is the “no change” rate, which reflects the percentage of audits that don't change a taxpayer’s liability for the year under audit. From fiscal years 2010 through 2018, the report noted, the average no change rate was 23 percent for field audits conducted by the IRS's Small Business/Self-Employed Division and 32 percent for field audits conducted by the Large Business and International Division. With better technology, Olson’s report noted, the IRS audit functions could do a better job of selecting productive cases.
In 2018, the IRS had a systems crash on the last day of the tax-filing season, forcing it to extend the filing season by an extra day. The crash led to talk of the risk of a catastrophic systems collapse. “That risk does, indeed, exist,” said the report. “But there is a greater risk: IRS performance already is significantly limited by its aging systems, and if those systems aren’t replaced, the gap between what the IRS should be able to do and what the IRS is actually able to do will continue to increase in ways that don’t garner headlines but increasingly harm taxpayers and impair revenue collection.”
The report noted that the IRS effectively acts as the “accounts receivable department” of the federal government. In fiscal year 2018, it collected nearly $3.5 trillion on a budget of $11.43 billion — a return on investment of about 300 to 1. Yet the report observed that funding for IRS technology upgrades — provided through the Business Systems Modernization account — has been severely limited. BSM funding was reduced by 62 percent from fiscal year 2017 ($290 million) to fiscal year 2018 ($110 million) and accounted for only 1 percent of the agency’s overall appropriation in fiscal year 2018.
Tax Law Questions
Among other problems identified in the report, the IRS implemented a policy in 2014 allowing it to only answer tax-law questions during the filling season from January through the middle of April. It also narrowed the scope of questions it was answering during the filing season by expanding its list of “out-of-scope” topics. The IRS justified those restrictions as a cost-saving step.
Olson has criticized that decision, arguing that providing taxpayers with timely and accurate answers to their tax-law questions was a core function of the IRS, and she has urged the IRS to reverse its policy.
The report pointed out that the IRS does not collect information when it receives calls asking questions about topics thay are considered to be out-of-scope. As a result, it doesn't know when a large number of taxpayers might be confused about a topic and extra guidance should be provided.
Last spring, the IRS relented and said it would answer tax-law questions relating to the Tax Cuts and Jobs Act throughout the year. But to check up on the customer experience with respect to tax-law questions, the Taxpayer Advocate Service developed and tested a series of questions relating to issues deemed in-scope that did not change under the TCJA, issues considered to be out-of-scope, and issues affected by the TCJA. The callers from TAS met with inconsistent service, even when asking questions about the TCJA that the IRS had indicated it would answer.
In the fall, several TAS callers were read the same script: “There is no tax law personnel at this time due to budgetary cuts. This tax topic cannot be answered at this time. The employees that will be able to answer this question will be available beginning Jan. 2, 2019 through April 15, 2019.”
On many calls, the answering employee told them the call would be transferred, but the transfer ended with a pre-recorded message saying the question was out-of-scope and the call was then disconnected. On other calls, the employees whp answered told the callers they had not yet received any or much training on the TCJA and apologized for being unable to help.
To help taxpayers, TAS created a
