Impact of Inadequate Funding on Taxpayer Services
House Ways and Means Oversight Subcommittee Hearing on IRS Oversight
Chairman Buchanan, Ranking Member Lewis and distinguished members of the subcommittee, I would like to thank you for allowing me to provide comments on the taxpayer experience with the IRS. As President of the National Treasury Employees Union (NTEU), I have the honor of representing over 150,000 federal workers in 31 agencies, including the men and women at the IRS.
Mr. Chairman, providing quality taxpayer service is a critical component of the IRS’ efforts to help the taxpaying public understand their tax obligations while making it easier to participate in the tax system. Through a variety of in-person, telephone and web-based methods, the IRS seeks to help taxpayers navigate an ever increasingly complex tax code and prevent inadvertent noncompliance. Unfortunately, the IRS’ ability to provide excellent taxpayer service has been severely challenged due to reduced funding in recent years. Without additional resources, further degradation in taxpayer services will occur that adds risk to our voluntary compliance system.
Impact of Inadequate Funding on Taxpayer Services
Since FY 2010, overall funding for the IRS has declined by more than $900 million, or 17 percent when adjusted for inflation, while the number of individual taxpayers has increased by 10 million, or more than 6 percent. These reductions have forced the Service to reduce the total number of full-time, permanent employees by almost 21,000, and resulted in a reduction in the number of employees assigned to answer telephone calls from 9,400 in 2010 to 6,200 in 2015, a 34% drop.
In the past few years, many experts in the tax community, including the National Taxpayer Advocate, IRS Oversight Board and the IRS Advisory Council have all warned of the dangers of underfunding the IRS and the adverse impact it has had on taxpayer service.
In her Annual Report to Congress released earlier this year, National Taxpayer Advocate Nina Olson identified insufficient funding of the IRS as one of the most serious problems facing taxpayers. According to Olson, the lack of adequate funding, coupled with a rising workload has had a devastating impact on IRS taxpayer service. Among the report’s findings are:
• Last year, only 61 percent of calls from taxpayers seeking assistance reached a customer service representative (CSR), leaving 20 million taxpayers unable to get through—that is a decline from 87 percent a decade earlier, with half the decline occurring since 2010;
• Taxpayers who did get through had to wait on hold approximately 17.6 minutes before speaking with a CSR. That’s up from 2.6 minutes ten years earlier, a nearly six-fold increase, with nearly half the increase occurring since FY 2010;
• An 86 percent drop in tax law questions answered from 795,000 10 years ago to only 110,000 in the 2013 tax-filing season;
• A cut of 87 percent, from $172 million in 2010 to just $22 million in 2013 for employee training.
• The IRS historically has prepared tax returns for taxpayers seeking its help, particularly for low income, elderly, and disabled taxpayers. Ten years ago, it prepared some 476,000 returns. That number declined significantly over the decade, and the IRS no longer prepares returns at all;
• Last year, the IRS received about 8.4 million letters from taxpayers responding to proposed adjustments to their tax liabilities. As of the end of the fiscal year, 53 percent of taxpayer letters in the IRS’s “adjustments” inventory were considered “over age” (generally, more than 45 days old). That compares with “over age” percentages of 12 percent ten years earlier and 28 percent in FY 2010;
• At the same time, the number of individual tax returns grew from 131 million in 2004 to more than 150 million in 2016, an almost 13 percent increase;
• Additionally, because funding reductions forced the IRS to shorten the period of employment for their seasonal employees who help answer taxpayer correspondence, the IRS’ inventory of correspondence from taxpayers in 2014 and 2015 grew significantly above what it normally would have been to more than 900,000.
For FY 2016, the IRS was provided with $290 million to improve the customer service representative level of service (LOS) rate, among other things. With $178 million of this additional funding, the IRS was able to hire an additional 1,000 extra temporary telephone assistors which helped the IRS raise the phone level of service to 72 percent during the 2016 filing season. Furthermore, taxpayers waited on average about 11 minutes to speak to an assistor, a dramatic improvement from the 23 minute average wait time during the previous filing season. The additional funding also freed up more resources to help the IRS reduce the correspondence inventory to 690,000 by the end of FY 2016, a drastic reduction from just two years prior. However, when the temporary employees went off the rolls at the end of the 2016 filing season, the phone LOS dropped, and the average for all of FY 2016 ended up at 53 percent.
Section 113 of the FY 2017 Omnibus Appropriations Act also included the $290 million in funding to raise the phone LOS, among other things. With a portion of this funding, the IRS was able to raise the LOS during the 2017 filing season to 79 percent (up from 72 percent during the 2016 filing season), and set a target of 64 percent for all of FY 2017.
NTEU was disappointed to see that neither the Administration’s FY 2018 budget request, nor the House or Senate FY 2018 FSGG bills, included the $290 million in targeted Section 113 funding to raise the phone level of service. Furthermore, the Administration actually proposed a $239 million reduction in taxpayer services seasonal staffing costs and a loss of roughly 2,200 FTEs. Without this critical funding and necessary staffing, the IRS projects an overall phone LOS for FY 2018 of just 39 percent, a drop of 25 percent from the FY 2017 level. While the House and Senate FY 2018 FSGG bills would increase base funding for taxpayer services over the FY 2017 level, the proposed overall reductions of $155 million (House) and $124 million (Senate) to the IRS for FY 2018 will require the IRS to divert some of their limited taxpayer service funding to other underfunded activities and programs. Without the full $290 million in targeted funding, critical gains made by the IRS in improving the phone LOS will be reversed, resulting in longer taxpayer wait times and inability of taxpayers to resolve their tax questions in a timely manner.
Impact on Taxpayer Identity Theft Assistance
As stated previously, the importance of quality taxpayer assistance is critical to ensuring taxpayers are able to navigate the complex tax code and understand and meet their tax obligations in a timely manner. But, it is also vital that the IRS has the resources to provide assistance to those who have been victimized by fraud, and in particular, identity theft. The need to provide timely assistance to victims of identity theft is clear. According to the IRS, the number of people who reported to the IRS that they were victims of identity theft grew from 233,365 in 2012 to 698,700 in 2015, an increase of almost 200 percent.
Identity theft cases are extremely complex and resolving these cases in a timely manner can be difficult as they often comprise multiple issues over multiple tax years. Recognizing the need to address the rising incidence of identity theft and provide victims with the assistance they need, the IRS has increased the number of employees dedicated to working identity theft cases. The IRS also provided updated training to telephone representatives who deal with identity theft victims on a daily basis so that they better understand the serious financial problems of identity theft victims and maintain the proper level of sensitivity when working with them.
And while the IRS is doing what it can to prevent identity theft, resolve cases in a timely manner, and provide its victims with the assistance they need, its ability to do so has been greatly diminished due to recent funding cuts.
Impact on IRS’ Ability to Provide Face to Face Service
Many taxpayers with tax problems still want to talk to an IRS employee face-to-face. However, if the IRS is forced to continue absorbing drastic cuts to its budget, fewer and fewer taxpayers will have that opportunity.
According to TIGTA, funding reductions have already forced the IRS to reduce the number of taxpayer assistance centers (TACs) from 401 to 376 since 2011. In addition, 22 TACs have no staff, while 95 have only one employee, and the IRS is considering closing a significant number of additional TACs through FY 2018. Because of its new “appointment only” policy, the IRS is projecting that the number of taxpayers visiting a TAC will decline from about 5.6 million in FY 2015 to 3.5 million this year.
The National Taxpayer Advocate has previously warned that limited resources were impeding IRS’ ability to provide taxpayers with the in-person assistance they need. For example, she has repeatedly warned staffing levels at TACs across the country are woefully inadequate.
Inadequate staffing and availability of service at TACs has long been a problem at the IRS and disproportionately impacts the most vulnerable populations who use TACs most often, including non-English speaking taxpayers, the elderly and low income individuals and families, who often need additional assistance in understanding and meeting their tax responsibilities. If these 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.
Taxpayers’ inability to get the answers they need to understand complex tax issues will almost certainly impact the accuracy of their returns, which could delay refunds to the many taxpayers that depend on their refunds to pay their bills and meet other financial obligations. While returns without any issues may be processed in a timely manner, those returns that are kicked out of the automated process will have to be worked by an understaffed IRS workforce which is down more than 20,000. A lack of adequate staff to handle these returns will almost inevitably lead to substantial delays in processing refunds for those taxpayers, delaying the financial relief they may require.
With taxpayers unable to receive the assistance they need to resolve their tax questions and accurately prepare their returns, many may be forced to turn to paid preparers for help, resulting in additional expenses for them to simply comply with their tax obligations.
NTEU strongly believes that limiting the amount of live assistance to taxpayers that are actively seeking assistance with their tax related issues will be detrimental to efforts to increase compliance with our nations’ tax laws, and only serve to harm those taxpayers that rely on the assistance of qualified and experienced IRS employees to understand and meet their tax obligations.
Mr. Chairman, I would be remiss if I didn’t mention ongoing efforts in Congress to consider the most extensive change in tax law since the “Tax Reform Act of 1986.” Should House and Senate negotiators agree on a final proposal to drastically reform the U.S. tax code, implementation of the proposal will fall almost entirely on the IRS. In order to implement tax reform legislation and assist the taxpaying public, IRS must, among other things, extensively reprogram its computers, develop new regulations and tax forms, educate taxpayers and the tax practitioner community so they can understand and comply with the new tax law, respond to what is expected to be a significant increase in taxpayer requests for direct assistance, and train IRS employees.
Unfortunately, little attention is being paid to the fact that the IRS will be charged with implementing the biggest overhaul of the U.S. tax code in 30 years, nor has any consideration been given to ensuring IRS has the resources necessary to carry out this monumental task. As noted previously, pending FY’18 appropriations bills in the House and Senate would actually decrease overall funding for the IRS by more than $100 million, resulting in the further loss of employees that would be central to IRS efforts to implement tax reform.
As with all statutory mandates, despite the absence of sufficient funding to carry out tax reform, the IRS will have to prioritize implementation which could result in the IRS being forced to divert resources from other critical enforcement and taxpayer service programs and defer investing in or upgrading its existing aged IT infrastructure.
Contrast this with the approach taken by the Administration and Congress after passage of the 1986 Reform Act when both acknowledged the vital role the IRS would play in implementing the new law and provided the agency with additional funding for FY 1997 and FY 1998. With the additional funding, the IRS was able to increase overall staffing for taxpayer service positions by more than 2,100 between 1986 and 1988, thereby allowing the IRS to better meet the considerable demand from taxpayers, businesses and other stakeholders for assistance in interpreting the new tax law.
NTEU was pleased to see the Senate tax reform proposal includes language expressing the need to improve IRS customer service and protections for taxpayers by reinstating appropriate IRS funding levels. In particular, the language “expresses the sense of the Senate that politically motivated budget cuts are counterproductive to deficit reduction, diminish the IRS's ability to adequately serve taxpayers and protect taxpayer information, and reduce the IRS's ability to enforce the law.” We strongly urge Congress to include this language in its final tax legislation and to ensure that any final FY’18 funding agreement provides the IRS with the necessary resources to implement any proposed changes to the tax code and to carry out their taxpayer service and enforcement mission.
Mr. Chairman, thank you again for the opportunity to provide NTEU’s views on IRS taxpayer service. NTEU believes that only by restoring funding for effective taxpayer service programs can the IRS provide taxpayers with the assistance they need to understand and meet their tax obligations, combat identity theft through fraud prevention and victim assistance and maximize revenue collection that is critical to reducing the national deficit.