Internal Revenue Service’s (IRS) Efforts to Modernize its Information Technology (IT) Infrastructure
House Ways and Means Subcommittee on 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 Internal Revenue Service’s (IRS) efforts to modernize its information technology (IT) infrastructure. 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, according to TIGTA, 64% of IRS IT hardware systems are aged and out of warranty and 32% of software products are two or more releases behind the industry standard, with 15% more than four releases behind. Furthermore, every year, another 20% of hardware moves to a status of aged beyond the manufacturers recommended useful life, if not replaced. In a September 2017 report, TIGTA specifically noted that “aged information technology hardware still in use introduces unnecessary risks…aged hardware failures may have also had a negative effect on IRS employee productivity, security of taxpayer information, and customer service.” As long as the IRS struggles to fund its basic operations, its employees without adequate resources, will continue to struggle to perform their duties for the public.
The risk to the American tax system of IRS’ aging IT infrastructure cannot be overstated. As the IRS Fiscal Year (FY) 2018 budget request notes, “this aging infrastructure puts the American tax system at risk of failure. Such conditions introduce security risks, excessive system downtime, systems and hardware no longer supported by the vendor, and incompatibilities across systems and programs.”
Despite the clear threat posed by an aging IT infrastructure, insufficient funding in recent years has forced the IRS to defer investing in or upgrading its existing aged IT infrastructure. As you know, since FY 2010, IRS funding has been cut by almost $1 billion, or nearly a 20 percent reduction on an inflation adjusted basis.
In addition, over the last several years the IRS has had to implement a number of significant legislative mandates, nearly all of which came with no additional funding which has limited its ability to replace its aged IT hardware inventory. According to TIGTA, between
FY 2012 and FY 2016, the IRS Information Technology organization, responsible for delivering information technology services and solutions that drive effective tax administration to ensure public confidence, allocated more than $1.3 billion of its funds alone to implement several unfunded legislative requirements, including the Affordable Care Act (ACA) and the Health Coverage Tax Credit (HCTC).
The IRS was tasked with a number of other unfunded mandates from congress which further required the IRS to divert limited IRS resources to implement, including the Foreign Account Tax Compliance Act (FACTA), the Achieving a Better Life Experience (ABLE) Act, reauthorization of the seriously delinquent debt certification program and the 2015 Protecting Americans from Tax Hikes (PATH) Act.
NTEU was disappointed to see the FY 2018 Omnibus Appropriations Act recently passed by the House would further reduce funding for the IRS by more than $155 million, which will further impede its ability to address its aging IT infrastructure and make necessary software upgrades that are critical to ensuring the integrity of our tax system.
In addition to the risk posed by an aging IT infrastructure, I would be remiss if I didn’t mention the risk to our tax system posed by insufficient staffing levels across the service. Funding reductions since FY 2010 have forced the Service to reduce the total number of full-time employees by approximately 18,000 across every state in the country, greatly hampering IRS’ ability to provide America's taxpayers top quality service and enforce our nation’s tax laws.
The drastic cuts to IRS’ budget come at a time when the IRS workforce is already facing a dramatically increasing workload with staffing levels down almost 20 percent below what they were just 6 years ago. In 2010, the IRS had 92,148 full-time employees to administer tax laws and process 230 million tax returns. By the close of 2016, that number had fallen to 74,151 to administer a more complicated tax code and process 244 million much more complex tax returns and other forms.
NTEU was disappointed that the Administration’s FY 2018 budget calls for reducing IRS funding by an additional $260 million below the FY 2017 enacted level and reducing overall staffing by more than 4,200. NTEU knows any further reductions in funding and staffing will further exacerbate the adverse impact previous cuts have had on IRS’ ability to provide taxpayers with the service they need and to enforce our nation’s tax laws. We believe that in order to continue to make improvements in taxpayer services while handling a growing workload and increasing collections, it is imperative to reverse the severe cuts in IRS staffing levels and begin providing adequate resources to meet these challenges. With the future workload only expected to continue 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.
Impact of Inadequate Funding on Taxpayer Services
Mr. Chairman, 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 excellent taxpayer service has been severely challenged due to reduced funding in recent years. Since FY 2010, overall funding for the IRS has declined by more than $900 million, while the number of individual taxpayers has increased by 10 million, or more than 6 percent. These reductions have 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 a letter to Congress following the close of the 2015 filing season, the IRS highlighted some of the adverse impacts these reductions had on its’ ability to deliver taxpayer services during the filing season. These include:
• A reduction in the percentage of callers seeking live assistance who received it (telephone level of service) to 38 percent—down from 74 percent in FY 2010.
• Taxpayers waited about 23 minutes on average for an IRS representative to get on the line, and more than 60 percent of calls were never answered. This represents a sharp decline from 2010, when the IRS answered three-quarters of calls and had an average wait time of just under 11 minutes.
• The IRS was not able to answer any tax-law questions except “basic” ones during the filing season, and now that the filing season is over, it will not answer any tax-law questions at all, leaving the roughly 15 million taxpayers who file later in the year unable to get answers to their questions by calling or visiting IRS offices.
The IRS historically has prepared tax returns for taxpayers seeking its help, particularly for low income, elderly, and disabled taxpayers. Eleven years ago, it prepared some 476,000 returns. That number declined significantly over the past decade, and in 2014 the IRS announced it would no longer prepare returns at all.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 and FY 2017, the IRS was provided with $290 million to improve the customer service representative level of service (LOS) 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 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.
Despite the clear evidence that providing the IRS with the $290 million in targeted funding enabled them to drastically reduce taxpayer wait times and improve the phone level of service during the 2016 and 2017 filing seasons, neither the Administration’s FY 2018 budget request nor the House passed FY 2018 Omnibus bill include this specific funding. In fact, the Administration’s request actually calls for reducing taxpayer services seasonal staffing costs by $239 million and overall taxpayer services staffing by almost 2,200 FTEs. The Administration’s request seems to acknowledge the adverse impact that these reductions will have on IRS’ ability to provide quality service by noting the target level of service for all of
FY 2018 is just 39 percent, a drop of 25 percent from the FY 2017 level. It is clear that the Administration’s proposed reductions in funding and staffing for taxpayer services will simply reverse the gains made in recent years and leave the IRS unable to provide taxpayers with the assistance they need.
The importance of providing taxpayers with timely assistance over the phone or in person is also of particular importance for 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. This same $290 million was also utilized to safeguard taxpayer data, enhance cyber security, and improve the identification and prevention of ID theft and refund fraud.
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 experiencing a degradation of services, including longer wait times to receive assistance over the telephone, increasing 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.
Impact on Enforcement & Efforts to Reduce the Federal Deficit
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. The adverse impact of insufficient funding on IRS’ capacity to collect revenue critical to reducing the federal deficit is clear. In FY 2016, operating on a budget of $11.2 billion, the IRS collected $3.3 trillion, roughly 93 percent of federal government receipts. According to the IRS, every dollar invested in IRS enforcement programs generates roughly $6 in increased revenues, but reduced funding for enforcement programs in recent years has led to a decline in enforcement revenue since FY 2007. In FY 2016, IRS enforcement activities brought in $54.3 billion, down almost $5 billion from the $59.2 billion of FY 2007.
The reduction in revenue can be partly attributed to a reduction in the total number of IRS enforcement personnel, including revenue officers and revenue agents – two groups critical to efforts to reduce the federal budget deficit. Since FY 2010, the total number of revenue officers and revenue agents fell more than 32 percent from 20,510 to 13,791, a reduction of almost 6,800 positions.
Without sufficient staffing to effectively enforce the law to ensure compliance with tax responsibilities and combat fraud, our voluntary tax compliance system is at risk. And as the IRS Commissioner has repeatedly noted, a simple one-percent decline in the compliance rate translates into $30 billion in lost revenue for the government.
Sufficient enforcement staffing is also critical if the IRS is to make further progress on closing the tax gap, which is the amount of tax owed by taxpayers that is not paid on time. According to the IRS, the amount of tax not timely paid is $450 billion, translating to a noncompliance rate of almost 17 percent.
While the tax gap can never be completely eliminated, even an incremental reduction in the amount of unpaid taxes would provide critical resources for the federal government. At a time when Congress is debating painful choices of program cuts and tax increases to address the federal budget deficit, NTEU believes it makes sense to invest in one of the most effective deficit reduction tools: collecting revenue that is owed, but hasn’t yet been paid.
Despite the clear evidence that reductions to enforcement funding and staffing have had on the Service’s efforts to generate revenue and to enforce our nation’s tax laws, NTEU was disappointed to see that both the Administration’s FY 2018 budget request and the recently House passed FY 2018 Omnibus legislation would slash funding for enforcement by more than $50 million from the current level, and could result in the loss of more than 2,100 enforcement FTEs. With enforcement staffing already down by more than 30 percent since FY 2010, any additional staffing reductions will simply further reduce IRS’ ability to enforce our nation’s tax laws, maximize taxpayer compliance, combat identity theft and other types of fraud, and generate revenue collection that is critical to reducing the federal deficit.
Mr. Chairman, the adverse impact of recent funding cuts on the IRS’ ability to provide taxpayers with the service they need and 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 level, 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, thank you for the opportunity to provide NTEU’s views on the IRS’ efforts to modernize its information technology (IT) infrastructure. We believe that in order to ensure the IRS is able to address its aging IT infrastructure, it must be provided with the necessary resources. Furthermore, it is important that such resources are provided as part of a multi-year investment that will allow the IRS to make continuous and ongoing upgrades as more of its legacy hardware becomes obsolete.
It is also important that as congress continues tasking the IRS with new responsibilities, it provide sufficient funding to allow the Service to meet its core taxpayer service and enforcement missions so that the IRS is not forced to divert much of their limited resources from their IT budget as has happened in recent years.