FY 2020 Budget Request for the IRS
House Appropriations Subcommitee Committee on Financial Services and General Government
Chairman Quigley, Ranking Member Graves and distinguished members of the subcommittee, I would like to thank you for allowing me to provide comments on the Administration’s FY 2020 budget request for the IRS. As President of the National Treasury Employees Union (NTEU), I have the honor of representing approximately 150,000 federal workers in 33 agencies, including the men and women at the IRS.
Since FY 2010, IRS funding has been cut by almost $845 million and those funding reductions have forced the IRS to reduce the total number of full-time employees by more than 23,000 across every state. In addition, since FY 2011, the IRS has had to operate under an exception-only hiring policy, which has limited its ability to replace employees lost through attrition.
At the same time the IRS has been operating with reduced funding and a declining workforce, workloads and responsibilities for the agency have increased. In particular, since FY 2010, several unfunded legislative mandates, including the Affordable Care Act (ACA), the Foreign Account Tax Compliance Act (FACTA), the Achieving a Better Life Experience (ABLE) Act, reauthorization of the Health Coverage Tax Credit (HCTC), the seriously delinquent debt certification program and the 2015 Protecting Americans from Tax Hikes (PATH) Act, have expanded the IRS’s responsibilities and required the diversion of resources from core tax administration responsibilities.
In addition, last year the IRS was tasked with implementing and carrying out the most extensive changes to the U.S. tax code since 1986. Implementation of this drastic overhaul of the tax code required the IRS to, among other things, (1) interpret the law; (2) create or revise nearly 500 tax forms, publications, and instructions; (3) publish guidance and additional materials; (4) reprogram 140 interrelated return processing systems; and (5) hire additional staff and train its workforce to help taxpayers understand the law.
The lack of sufficient staffing coupled with a rising workload has strained IRS’ capacity to provide America's taxpayers with top quality service to enforce our nation’s tax laws.
NTEU was disappointed that the Administration’s FY 2020 budget calls for just $11.4 billion in base funding for the IRS, a minimal increase over the current FY 2019 level. We believe the $11.4 billion in proposed base funding is wholly inadequate and will do little to help the IRS reverse the adverse impact of previous budget reductions. Indeed, despite calling for an overall increase in funding, the administration’s request is projected to reduce overall staffing at the IRS by more than 1,600 FTEs.
While we are disappointed in the Administration’s proposal for funding base taxpayer service and enforcement activities, we strongly support the Administration’s request for an additional $362 million in enforcement funding for FY 2020 through a program integrity cap adjustment for high revenue generating enforcement activities. This $362 million would fund new and continuing investments in expanding and improving the effectiveness and efficiency of the IRS’s overall tax enforcement program. These investments are expected to generate an additional $47 billion in additional tax revenue over ten years.
Recognizing the wisdom of small spending increases when they will be more than offset by larger returns on investment, both Democratic and Republican Administrations have requested, and Congress has approved, integrity cap adjustments for IRS enforcement activities. The Budget Control Act of 2011 specifically allows for other program integrity cap adjustments for Social Security disability claim reviews and health care fraud and abuse programs. Legislation recently introduced by the Chairman of the House Budget Committee and co-sponsored by House Appropriations Chairwoman Lowey, H.R. 2120, the “Investing for the People Act of 2019” also includes an IRS enforcement program integrity cap adjustment.
NTEU strongly supports providing the IRS with additional enforcement funding for
FY 2020 via a program integrity cap allocation adjustment.
Continued reductions in funding and staffing have seriously impaired IRS’ ability to provide taxpayers with the service they need to comply with their tax obligations. Providing quality taxpayer service is a critical component of the IRS’ efforts to help the taxpaying public understand its federal tax obligations while making it easier to comply with the tax system. Unfortunately, the IRS’ ability to provide quality taxpayer service has been severely challenged due to reduced funding in recent years which has forced the IRS to reduce the overall number of staff supporting taxpayer service activities by more than 8 percent, including Customer Service Representatives (CSRs) which fell from 10,209 in 2010 to 9,209 in 2017.
The reduction in employees assigned to answer taxpayer inquiries in recent years led to a rapid decline in the phone level of service (LOS), resulting in just 38 percent of taxpayer calls being answered during the 2015 filing season, down from 74 percent in FY 2010. In addition, wait times to speak to IRS representatives increased to an average of 23 minutes.
Recognizing the adverse impact that funding reductions were having on IRS taxpayer service activities, Congress provided the IRS with $290 million in targeted funding in fiscal years 2016 and 2017 to improve the phone level of service rate, among other things. With this funding, the IRS was able to hire additional temporary telephone assistors which drastically reduced taxpayer wait times and helped the IRS raise the phone level of service from 38 percent during the 2015 filing season to 72 percent during the 2016 filing season, and to 79 percent during the 2017 filing season. The Administration has noted additional resources in FY 2018 helped the IRS achieve an 80 percent FY 2018 filing season LOS.
Unfortunately, despite acknowledging that additional funding enabled the IRS to drastically reduce taxpayer wait times and improve the phone level of service during recent filing seasons, the Administration’s FY 2020 budget request calls for reducing funding for taxpayer services by almost $90 million below the current level and reducing overall staffing for taxpayer services by almost 2,200 FTEs from the FY 2019 CR level. The Administration acknowledges this level of funding would lower the phone level of service from 76% in FY 2018 to just 68% in FY 2020.
NTEU believes it is critical that the IRS is able to provide taxpayers with timely assistance, particularly for those that are victims of identity theft and other types of tax refund fraud. These cases are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years, and the process of resolving these cases can be very frustrating for victims. While the IRS has made considerable progress in this area, additional work remains. Fighting identity theft is an ongoing battle as identity thieves continue to create new ways of stealing personal information and using it for their gain. Therefore, it is critical that the IRS has the resources and staffing necessary to prevent refund fraud from occurring in the first place, to investigate identity theft-related crimes when they do occur, and to help taxpayers who have been victimized by identity thieves as quickly as possible.
Mr. Chairman, it is clear that drastic funding reductions in recent years have seriously eroded the IRS’ ability to provide taxpayers with the services they need. Without additional funding, taxpayers will continue to experience a degradation of services, recent progress in providing taxpayers with timely assistance on the phone will be reversed, and correspondence inventories, including letters from victims of identity theft and taxpayers seeking to resolve issues with taxes due or looking to set up payment plans, will increase.
Mr. Chairman, NTEU believes a strong enforcement program that respects taxpayer rights, and minimizes taxpayer burden, plays a critical role in IRS’ efforts to enhance voluntary compliance, combat the rising incidence of identity theft, and reduce the tax gap.
Unfortunately, funding reductions in recent years are undermining the Service’s ability to maximize taxpayer compliance, prevent tax evasion and reduce the deficit. Since FY 2010, funding for enforcement activities has been slashed by almost $645 million which has forced the IRS to reduce overall enforcement staffing by 27 percent, including IRS revenue officers (ROs) who are critical to IRS enforcement efforts. According to data from the Office of Personnel Management (OPM), the total number of ROs declined by nearly 40 percent between FY 2011 and FY 2017 and entry level ROs declined by 86 percent during the same period.
The adverse impact of funding and staffing reductions to IRS enforcement was highlighted in a March 2019 report by the GAO (GAO-19-176). The report noted that reduced staffing for enforcement has forced the IRS to scale back a number of program activities, including audits of individuals and large corporations. According to the report, between FY 2011 through 2017, the number of individual returns audited has declined by 40 percent. Additionally, audit rates of large corporations with assets $10 million or greater declined from 17.7 percent in FY 2011 to 7.9 percent in FY 2017.
The report also noted budget reductions had resulted in the loss of more than 18 percent of IRS tax examiners who are responsible for responding to taxpayer’s inquiries regarding preparations of variety of tax returns, related schedules and other documentation, resolving account inquiries, advising taxpayers of enforcement actions, adjusting taxpayer accounts, preparing and issuing manual refunds and computing tax, penalty and interest. According to the IRS, in 2018, and in response to declining tax examiner personnel, IRS doubled the dollar amount threshold examiners use to select refunds for additional audit. The IRS said this means thousands of refunds that would have received additional scrutiny due to errors or anomalies are no longer considered for follow-up review by examiners. This means the government is potentially missing significant opportunities to collect revenue and enforce tax laws.
Concerns over IRS’s ability to enforce tax laws has led GAO to include tax enforcement in its high-risk list since 1990. In particular, GAO has identified IRS’ ability to address the tax gap, and combat identify theft refund fraud as major challenges. In their most recent report, (GAO-19-157), GAO notes IRS’s capacity to implement new initiatives, carry out ongoing enforcement and taxpayer service programs, and combat identity theft (IDT) refund fraud under an uncertain budgetary environment remains a challenge.
NTEU knows that if the IRS is to continue making progress in combating identify theft and closing the tax gap, it must be provided with additional staffing. Without sufficient staffing to effectively enforce the law, ensure compliance with tax responsibilities and combat fraud, our voluntary tax compliance system is at risk. And as the former IRS Commissioner repeatedly noted, a simple one-percent decline in the compliance rate translates into $30 billion in lost revenue for the government.
Despite the clear evidence that reductions to enforcement funding and staffing are hampering IRS’s efforts to enforce our nation’s tax laws, NTEU was disappointed to see the Administration’s FY 2020 budget request would reduce funding for enforcement by almost $154 million below the current level. Because it will have fewer staff available to work cases, the IRS announced it is lowering the target rate for collection coverage, as well as for exam coverage, for individuals and businesses with assets of more than $10 million for FY 2020.
Mr. Chairman, the adverse impact of recent and continued funding cuts on the IRS’ ability to provide taxpayers with the service they need and to enforce our nation’s tax laws is clear. NTEU strongly believes that only by providing the IRS with additional resources will the IRS be able to meet the rising workload, stabilize and strengthen tax compliance and customer service programs, and allow the Service to address the federal deficit in a serious and meaningful way
Mr. Chairman, I would be remiss if I didn’t mention the 35-day partial government shutdown and the devastating impact it had on the IRS and its employees. The shutdown impacted nearly 70,000 employees at the IRS who were furloughed or were designated “excepted/exempt” and forced to work without pay. These dedicated employees went over a month without pay and were terrified about how they would pay their mortgage, rent, student loans, child care, and credit card bills. The uncertainty of their financial situation caused employees to pull back on expenses and inquire about or even file for unemployment. And those employees who were forced to work without pay were left without the ability to earn additional income with part-time work and were unable to get unemployment benefits. At the same time, they incurred additional expenses going to work every day which exacerbated their financial distress.
In addition to the human toll on IRS employees, the shutdown severely impacted IRS’s ability to provide critical services to American taxpayers and, in particular, to prepare for the 2019 filing season when most provisions from the most extensive change to the U.S. tax code in 30 years were being reported on tax returns for the first time.
Among the critical functions that IRS was unable to carryout was the processing of amended returns, all audit functions, and IRS call sites and taxpayer assistance centers (TACs) around the country were closed. Additionally, because the shutdown occurred immediately prior to the start of the filing season, it prevented the IRS from completing hiring and training of seasonal employees. In recent testimony before congress, Nina Olson, the National Taxpayer Advocate, highlighted the adverse impact the shutdown on IRS’s ability to deliver a successful filing season, and in particular, on the phone level of service (LOS) and correspondence inventories.
According to Olson, through Feb. 23, 2019, the LOS for all IRS telephone lines dropped from 71 percent last season to 48 percent and hold times increased from 10 to 17 minutes. As a result, taxpayers, businesses and tax professionals have struggled to get the answers they need to file accurate returns. If taxpayers are not provided the assistance they need to understand their tax obligations, they may inadvertently file an incorrect return which could necessitate the need for IRS to undertake post-filing actions that are costly and burdensome to both the taxpayer and the IRS.
In addition, the shutdown led to a drastic increase in correpondence inventories. According to Olson, by the final day of the shutdown, the IRS had over 5 million pieces of unprocessed mail. Olson noted that typically the IRS shifts employees in Accounts Management between answering calls on the toll-free phone line and processing correspondence, but with correspondence inventories up 152 percent compared with the previous filing season, the IRS could not shift employees to improve telephone responsiveness without falling further behind in addressing taxpayer correspondence.
Mr. Chairman, during the shutdown, IRS employees suffered both personal hardship and, because of their dedication to their public service work, they were troubled by the critical services they knew were not being carried out on behalf of American taxpayers. It is essential that the Congress and the President never allow such a shutdown to happen again.
Mr. Chairman, thank you for the opportunity to provide NTEU’s views on the Administration’s FY 2020 budget request for the IRS. We believe that to ensure the IRS is able to continue making improvements in taxpayer services while handling a growing workload, it is imperative that the agency is provided with the resources and staffing necessary to meet these challenges. With the complexity of tax administration and future workloads only expected to rise, the IRS will be under a great deal of pressure to improve customer service standards while simultaneously enforcing the nation’s tax laws.