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Taxpayer Advocate Annual Report

January 13, 2020

No one likes dealing with the IRS. Opinions of the organization often run from total contempt to mild frustration. For starters, nearly everyone dislikes paying taxes. Add a large and poorly organized bureaucracy, poor customer service, and sometimes heavy-handed collection tactics and it is easy to see how the IRS has earned its poor reputation. This was a big theme of interim National Taxpayer Advocate, Bridget Roberts, annual address to Congress.

The mission of the IRS is to implement the US tax code fairly and provide American taxpayers with high quality service. Roberts’ testimony highlighted areas where the Service is falling short in both areas. She also highlighted areas where the IRS could improve and gave some ways the current problems could be corrected.

To start, the IRS has been unable to collect an average of $381 billion per year. This number is often referred to as the tax gap as it represents the gap between what the IRS should be collecting and what it has actually collected. To meet its objective of fairness the IRS has an obligation to make sure that everyone pays their legally obligated tax liability, otherwise the taxpayers who do comply are paying for those who are not. So closing the tax gap should be a top priority of the IRS but statistics show that they have not made significant headway toward this goal in recent years.

Second, IRS customer service continues to get low rankings. IRS customer service ranks well below the economy-wide average and the federal government average. One of the data points cited is that the IRS received approximately 100 million phone calls in 2019 but only answered 29% of those called. Especially concerning is the poor customer service provided to taxpayers in collections who may be facing economic hardship due to IRS actions but were unable to reach an IRS agent to work out their debt or report their hardship.

One of the reasons for the IRS’s poor performance is its reduced budget. The IRS budget has declined by 20% inflation-adjusted since 2010 which has led to a 22% reduction in full-time equivalent employees. Add the recent tax law changes and increased complexity of the tax code to the reduced resources and it is easy to see how the IRS is in a difficult situation.

To address these issues Congress passed the Taxpayer First Act in July 2019.  This is the culmination of an initiative that the Taxpayer Advocate Office as promoted for years. The bill has four parts.

  1. The IRS must design and implement a new taxpayer service strategy by July 2020 with the goal of improving IRS customer service.
  2. The IRS must redesign its organizational structure by September 2020 with the goal of streamlining IRS operations to create more efficiencies and make it easier for American Taxpayers to navigate the system.
  3. New employee training programs over the next several years that will help IRS employees better serve taxpayers.
  4. Addressing IRS informational technology (IT) needs in order to better implement the tax code in a cost-effective manner.

It remains to be seen whether these proposed changes have a meaningful impact on IRS operations and customer service ratings. Given that these initiatives do not come with additional funding the IRS may have to find ways to do more with less or the poor service record of the IRS may continue.