IS THE IRS MELTING DOWN? The Agency in Crisis By Daniel J. Pilla
According to the Taxpayer Bill of Rights, number one on the list of the ten enumerated rights is the “right to be informed.” Taxpayers have a fundamental right to know what the law is and what they must do to comply. In fact, beginning with the first Taxpayer Bill of Rights Act in 1988, Congress declared four separate times that the IRS has a duty to communicate with taxpayers “in simple and nontechnical terms” regarding their rights and obligations.
In this regard, the IRS is failing miserably and at the worst possible time. According to the National Taxpayer Advocate (NTA), the Internal Revenue Code now consists of about 4 million words. Since 2001, there were more than 5,900 changes to the tax code. And that doesn’t include the dozens of changes made by the Tax Cuts and Jobs Act, which boasts the most sweeping “reform” since 1986.
Despite the IRS’s affirmative duty to help people, the agency pays mere lip service to taxpayer education and assistance. People are simply not getting the help they need. Here are four examples.
- Phone Calls Seeking Assistance. Every year since 2008, approximately 100 million people call the agency seeking help. The IRS measures its effectiveness in dealing with these calls in terms of “level of service” (LOS). The level of service is the rate at which calls are answered. For example, if the LOS is 75%, three-quarters of the calls were answered and the taxpayer got some help. (Whether the answers are accurate is another question.)
The sad reality is that the LOS is nowhere near 75%. The chart below indicates the LOS for telephone calls through February 23, 2019. The results are abysmal.
* Source: NTA Testimony to Congress, March 7, 2019
For example, the “Installment Agreement” category represents taxpayers calling in response to a collection notice. These people are usually trying to give the IRS money, and yet more than four out of every five calls are unanswered. Those who did get through had to wait an hour on hold to do so. Astonishingly, this LOS is the worst of all the IRS various phone lines. These people are calling to pay their taxes or to explain that they are experiencing economic hardship. Yet the IRS cannot pick up the phone to talk to them. What message does this send when the IRS then turns to enforcement action to collect? When people can’t comply because of ignorance or IRS indifference, they often become unwilling to comply as time goes on.
The IRS’s increasing failure to help people willing to comply sends exactly the wrong message to the public.
2. Taxpayer Assistance Centers. Over 5 million people annually visit Taxpayer Assistance Centers (TACs)—walk-in sites—looking for help. This is the IRS function that meets with citizens face-to-face to help them navigate a particular problem or get help with filing obligations. Data shows that 41% of the people reaching out to the IRS could not get an appointment to address their needs.
One reason is that since 2005, the IRS has steadily closed TACs, allegedly due to the growth in the use of the agency’s web site and because of employee and facility costs. The IRS is down to just about 401 sites nationwide, which are supposed to serve 5 million people. I believe the decision was foolish and short-sighted. Remember, people coming to these sites are taking affirmative action to comply with the law and pay their taxes.
Not only is the number of sites shrinking, but the IRS has gone to an appointment-only system. This means that those who show up without an appointment are turned away. Even worse, the TACs have completely stopped offering tax preparation services to low income, elderly, and disabled citizens. Moreover, they no longer answer “out-of-scope” tax law questions during the filing season and do not answer any tax law questions outside of filing season, which ends April 15. However, over 13 million people file extensions every year, meaning they likely need help later in the year but can’t get it.
While we on the subject of tax law questions, during 2018, the first year in which the Tax Cuts and Jobs Act was effect, the NTA staged a number of test calls to the IRS to determine what might happen when a citizen calls looking for help. The NTA reports that callers received inconsistent service which includes getting inaccurate answers and often were told via recording, “There is no tax law personnel at this time due to budgetary cuts.”
Further calls were staged during February 2019. The NTA stated to Congress that callers “continued to receive inaccurate answers.”
This is one reason the NTA classifies the IRS’s lack of timely and accurate answers to tax law questions as the number one most serious problem citizens face when dealing with the IRS. NTA, 2018 Annual Report to Congress (2-2019), 17, 19.
3. Public Outreach and Liaison Services. As of September 2016, the IRS dedicated only 98 employees to conducting education and outreach to the 62 million small businesses and self-employed people in America. Moreover, only 365 employees conduct education and outreach to the nearly 150 million individual tax return filers. There are fourteen states that have no employees to provide these services. Yet businesses bear the brunt of the compliance burden and small businesses are especially challenged by the Byzantine rules, especially those governing employment tax payments and reporting. About two-thirds of all penalties are assessed against businesses and most of those relate to employment tax failures.
4. Responses to IRS Notices. Each year, the IRS receives at least 10 million letters questioning adjustments made to taxpayers’ accounts. These are serious matters and people are understandably concerned about them. The IRS is required to respond to taxpayer inquiries within forty-five days. However, according to the NTA, current correspondence inventories are 152% higher than in 2018, and there is a backlog of hundreds of thousands of letters. Fifty-two percent of inquiries are considered “over-age,” meaning the IRS is taking too long to respond. This reflects an increase of 333% over 2018 “over-age” inventories.
One reason for this is the agency uses the same staff to answer both phone calls and letters. It shifts employees between the two functions based on current demands. However, there is no option when both call volumes and correspondence levels are up simultaneously.
The conclusion from these facts is inescapable. The IRS dedicates woefully inadequate funding and resources for education and assistance programs and seems generally unwilling to address taxpayers’ challenges in a timely manner. In a very real way, citizens are left to fend for themselves despite having to deal with a 4-million-word tax code and despite the fact that citizens are entitled to “quality service” as a matter of right. This is just one reason every taxpayer needs to my book, The IRS Problem Solver.
As excuses for not addressing these issues, the IRS points to “inadequate funding” and a drop in its workforce. The IRS also points to additional burdens that Congress placed on the agency that have nothing to do with tax compliance generally. The best example is the IRS’s massive responsibilities under the Affordable Care Act.
It is true that the IRS lost about 14 percent of its staff since 2010 due to retirements and hiring freezes. It is also true that the IRS has lost about 18 percent of its funding during that same time. But none of that seems to prevent the IRS from aggressively carrying out enforcement actions. We still see approximately 3.5 million third-party levies and about 1 million tax liens filed annually. But we do not see any evidence of a good faith attempt by the IRS to help people who are willing to comply but need guidance. The IRS remains wrongfully and stubbornly focused on enforcement, apparently more interested in grinding people into powder when they don’t comply than helping them comply in the first place.
At the same time, Congress heaps ever more compliance burdens on individuals and businesses.
Mind you, I am NOT calling for more money for the IRS. As far as I’m concerned, they can cut the IRS’s budget by 100%. Rather, I’m calling on the Trump Administration and Congress to acknowledge that our tax code is quickly reaching the point where it is unenforceable. We need true tax reform, not more tinkering around the edges.
Dan Pilla is a tax litigation consultant and author of 15 books on taxpayers’ rights issues, IRS problems resolution strategies, federal tax policy, and cultural issues. His book The IRS Problem Solver was ranked by the Wall Street Journal as the number 1 tax book in America. See: www.danpillabooks.com.