Internal Revenue Service Budget for FY 2011

2/24/2010

House Appropriations Subcommittee on Financial Services and General Government

Chairman Serrano, Ranking Member Emerson, and distinguished members of the Subcommittee, I would like to thank you for allowing me to provide comments on the Administration’s FY 2011 budget request for the Internal Revenue Service (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.

IRS FY 2011 Budget Request

Mr. Chairman, NTEU strongly supports the Administration’s FY 2011 budget request of $12.6 billion for the IRS, a 4 percent increase of $487 million over the FY 2010 level. We believe that the President’s request will allow the IRS to continue helping taxpayers meet their tax obligations while also improving enforcement of the tax law.

We are particularly pleased the Administration’s budget request would provide critical increases for Service enforcement and taxpayer service activities, and would allow the IRS to continue efforts to rebuild its workforce which is still down by almost 20,000 since 1995.

I would also note that in previous years, NTEU has supported the budget recommendations proposed by the IRS Oversight Board which have generally called for additional resources above that requested by the Administration. For FY 2011, the Oversight Board has recommended $13.495 billion in funding for the IRS. While we have not seen the specific details of the Board’s proposal, we would be inclined to support providing additional funding for the IRS above the Administration’s request and look forward to reviewing the Board’s recommendation.

Taxpayer Services

Mr. Chairman, helping taxpayers understand their tax reporting and payment obligations is the foundation of taxpayer compliance. Through a variety of channels, the IRS is able to provide year-round assistance to millions of taxpayers, including outreach and education programs, issuance of tax forms and publications, rulings and regulations, toll-free call centers, the IRS.gov web site, Taxpayer Assistance Centers (TACs), Volunteer Income Tax Assistance (VITA) sites, and Tax Counseling for the Elderly (TCE) sites. These efforts have enabled the IRS continue raising the standard of service to America’s taxpayers and assisted in efforts to improve voluntary compliance.

The IRS’ comprehensive approach to taxpayer service played a critical role in allowing it to deliver a successful 2009 filing season, despite dealing with a number of difficult challenges posed by the residual effects of the 2008 Economic Stimulus Payment program and implementation of the American Reinvestment and Recovery Act. During this time, IRS employees processed more than144 million individual returns and issued 111 million refunds, totaling $339.6 billion; answered almost 39 million calls from taxpayers requesting information on new credits available to them; and helped more than 6.2 million taxpayers at the 401 Taxpayer Assistance Centers located around the country. And while these numbers show that employees providing taxpayer services are helping taxpayers understand and meet their tax responsibilities, more can and should be done.

We were happy to see the Administration’s request of $2.3 billion for taxpayer services acknowledges the good service that IRS employees provided to taxpayers in FY 2009 while also recognizing that additional progress can be made. In particular, we strongly support the $20 million in additional funding to improve telephone level of service.

As you know, demand for telephone service remained extremely high in FY 2009 as taxpayers called to obtain information regarding economic stimulus payments and new Recovery Act credits. The significant increase in call demand stressed existing resources which negatively impacted the level of service. But despite the high call volume, IRS achieved a 70% level of service and maintained account and tax law accuracy rates of over 93%.

NTEU strongly believes providing quality services to taxpayers is an important part of any overall strategy to improve compliance and that the President’s request for taxpayer services will enable the IRS to deliver another successful filing season, improve the responsiveness and accuracy of taxpayer service, and support Service efforts to enhance taxpayer compliance.

Enforcement

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 and reduce the tax gap.

That is why NTEU was happy to see the Administration’s budget request would provide a $293 million increase in funding for IRS tax enforcement above the FY 2010 level, including additional resources made available through a program integrity cap adjustment.

A large portion of this increase will be invested in strengthening current Service compliance programs designed to close the tax gap by combating offshore tax evasion, expanding enforcement efforts on noncompliance among corporate and high-income taxpayers, and addressing underreporting of income associated with international activities. These investments are expected to generate $1.9 billion in additional annual enforcement revenue, resulting in a return on investment (ROI) of more than 9 to 1, once new hires reach full potential in FY 2013. This estimate does not account for the deterrent effect of IRS enforcement programs, estimated to be at least three times larger than the direct revenue impact.

Mr. Chairman, NTEU strongly supports targeting additional resources to programs that would help close the tax gap. In addition to generating additional revenue for the federal government, reducing the tax gap will help strengthen public trust in the fairness of the tax system which will positively impact voluntary compliance with tax laws.

Section 1203

Mr. Chairman, while meaningful funding for the IRS is important to operations, NTEU also believes that in order to maximize efficiencies at the IRS, Congress must act to modify Section 1203 of the IRS Restructuring and Reform Act of 1988 (RRA 98). Commonly known as the “Ten Deadly Sins,” Section 1203 outlines ten infractions for which IRS employees must be fired, including the untimely filing of federal income taxes even when a refund is due. No other federal or congressional employee is subject to similar mandatory termination.

Without question, Section 1203 has had a negative impact on the morale of the IRS workforce and is impeding the ability of the IRS to perform its mission. According to numerous GAO reports, IRS employees greatly fear the threat of being fired under Section 1203. This in turn has had a chilling effect on the ability of IRS employees to do their jobs. In particular, employees specifically attribute the decrease in recommending a seizure of taxpayer’s assets to Section 1203. Clearly, Section 1203 impedes IRS’ enforcement mission and is unfair to the IRS employees who must work under the constant threat of losing their jobs.

NTEU believes mandatory termination for Section 1203 violations is unduly harsh and should not be the only disciplinary action available. We advocate amending RRA 98 to allow for appropriate penalties other than mandatory termination for Section 1203 violations and to allow for independent review of determinations.

To be clear, NTEU does not condone any violation of law or rules of conduct by its members at the IRS or in any other government agency. Violations of some rules clearly warrant termination of employment. However, one group of federal employees should not be singled out and required to be fired for offenses that do not subject other executive, judicial, or legislative branch employees to the same penalty.

Mr. Chairman, the large majority of IRS employees work hard, follow the rules and pay their taxes on time. It is patently unfair to hold those who are charged with enforcing the tax laws to a higher standard than those who write them. NTEU asks for your support for changes to section 1203 of the IRS Reform and Restructuring Act, so that tax fairness applies to all Americans, even those who work at the IRS.

Contracting Out

NTEU has long maintained that federal employees, given the appropriate tools and resources, do the work of the federal government better and more efficiently than any private entity. The prior administration, however, distrusted federal employees and pursued an unwavering agenda of targeting federal employee jobs for public-private competition. Competitive sourcing was one of its top five initiatives. As part of that Administration’s efforts, we saw the rules of competition overhauled, quotas set for competed jobs, and grades given to agencies on their efforts in conducting competitions. These changes had nothing to do with ensuring fair play; rather, they were intended uniquely to benefit private contractors and to disadvantage dedicated federal employees, at the expense of the federal taxpayer. The changes undoubtedly had the desired effect: federal contract spending has exploded, nearly doubling from $207 billion in 2000 to $400 billion in 2008.

This government-wide privatization blitz has resulted in contractors performing functions that are clearly inherently governmental or closely associated to inherently governmental functions. One of the most egregious examples of misguided outsourcing was the IRS private tax collection program. The IRS’ decision to enter into tax collection contracts with private contractors was an unmitigated disaster. That effort was roundly criticized; it was not cost-effective, it lacked customer service for multilingual taxpayers, it was secretive, and it proved manipulative to taxpayers. Given the obvious failures of this undertaking, the IRS recently abandoned the program. We would like to thank the subcommittee for including language in the FY 2009 and FY 2010 Omnibus Appropriations bills that prohibited funding for the program, and urge the subcommittee to once again include this language for FY 2011 as IRS still retains the statutory authority to revive the program if they so choose. Nothing is as inherently governmental as the collection of taxes, and all steps must be taken to assure that IRS never again undertakes efforts to privatize tax collection.

After fighting for eight years against ill-advised policies, such as these, that took federal workers for granted, we are very pleased to see that this Administration is focused on leveling the playing field, ensuring accountability of contractors, and reaffirming the core principle that, as a general matter, the work of the federal government is best performed by government employees. We firmly believe that federal employees are the best value for taxpayers’ dollars and welcome the opportunity for them to demonstrate their effectiveness and efficiency.

Inherently Governmental Functions

Mr. Chairman, as you may know, as part of a larger government-wide review of the federal contracting system, the Office of Management and Budget (OMB) was charged with developing guidance clarifying the definition of inherently governmental.

NTEU strongly believes that clear criteria identifying and defining inherently governmental functions are critical to the Administration’s overall efforts to reform and strengthen the federal contracting system.

We believe that a reaffirmation of the Federal Activities Inventory Reform (FAIR) Act’s definition of inherently governmental, coupled with a repudiation of all other conflicting definitions, is all that is immediately necessary to guide agencies in determining when federal employees should perform the work of the federal government.

We also feel there are certain specific errors in the 2003 revisions to the Circular A-76 that require explicit rejection. One of these errors is the presumption in that Circular that a government function is commercial in nature, and therefore subject to privatization, unless affirmatively shown otherwise. In fact, the burden should be clearly placed on agencies to explain why they have determined that a function does not satisfy the definition of inherently governmental.

Another error in the revised Circular A-76 was the addition of language widely interpreted to increase the level of discretion required in inherently governmental functions. Although the FAIR Act states only that inherently governmental functions include those that require the “exercise of discretion,” the Circular referred to activities requiring “substantial official discretion in the application of governmental authority and /or in making decisions for the government.” These revisions clearly express a bias towards the use of contractors instead of government personnel, a bias that we believe must be eliminated to ensure a fair and balanced approach to the designation of federal functions.

We would like to thank the subcommittee for recognizing the fundamental flaws of the current A-76 process and for including language in the FY 2010 Omnibus Appropriations bill that would extend for another year a moratorium on new A-76 public-private job competitions. The language specifically prohibits the use of funds to begin or announce new public-private competitions pursuant to OMB Circular A-76, so that the Administration has the opportunity to continue reviewing and developing Federal workforce policies.

We are hopeful that congress and the Administration can work together to reverse the past eight years of misguided pressures to outsource federal employee work that has taken an immeasurable toll on employee morale and at great taxpayer expense. Federal employees should be given a fair chance to demonstrate that they are the best equipped and most efficient people to perform the work of the federal government and safeguard the interests of the taxpayers in getting the best value for their money.

Safety of IRS Employees

Mr. Chairman, in light of recent events, I would also like to reflect for a moment on the issue of safety and security of IRS employees. As you know, on Thursday, February 18, in what authorities believe was an intentional attack, a pilot crashed his small plane into a building housing almost 200 IRS employees in Austin, TX. The attack, in which one IRS employee perished and several others were seriously injured, serves as a grim reminder of the great risk that the men and women of the IRS face each and every day in service of this country. I know the subcommittee joins with NTEU in sending our condolences to the family of the fallen IRS employee and to all those affected by this senseless tragedy.

Unfortunately, attacks on the IRS and its employees are all too common. According to the Treasury Inspector General for Tax Administration (TIGTA) which is charged with investigating threats and assaults against IRS personnel, more than 1,200 threat and assault cases were referred to TIGTA for investigation between 2001 and 2008. The cases resulted in more than 167 indictments and at least 195 convictions.

In the coming days and weeks, NTEU hopes to work with both Congress and the IRS in reviewing security procedures in offices around the country to ensure that all possible steps are being taken to protect IRS employees from dangerous individuals. As Commissioner Shulman recently stated, nothing is more important than the personal safety and security of IRS employees.

Conclusion

Mr. Chairman, thank you for the opportunity to provide NTEU’s thoughts on the Administration’s FY 2011 budget request for the IRS. We believe that by investing in demonstrably effective enforcement and taxpayer service programs, the Administration’s request will ensure the IRS continues to meet its mission of providing America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.