Misguided IRS funding for law enforcement is destroying its service

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Whatever your politics, I think we can all agree that the IRS is underfunded, understaffed, and has ridiculously outdated technology that prevents it from performing even its most basic functions competently or effectively. . While I’m glad the Cut Inflation Act includes significant funding for the IRS, I remain frustrated with the hyper-focus on enforcement activities. More than half of the $80 billion in new funding would go to these activities rather than technology improvements, customer service or the processing of returns, payments and other documents.

Let’s review where we are today with the IRS. The Taxpayer Advocate’s 2022 report to Congress was scathing. The main conclusions were:

  • At the end of the 2021 filing season, the IRS was dealing with a backlog of more than 35 million personal and business tax returns that require manual processing for a variety of reasons. Some had been filed on paper, had not undergone automated checks or had been amended declarations. The bad news is that all of these returns now require human intervention, which means there will be further delays in processing, overwhelming average taxpayers waiting for their money.
  • During the filing season, the IRS received 167 million phone calls, more than four times as many calls as the 2019 filing season. At the height of the season, calls were logged at a staggering rate of 1,500 per second.
  • The understaffed agency could not come close to handling volume, reporting a level of service on its account management phone lines of 15%, with only 7% of taxpayer calls reaching a true customer service representative.
  • On the 1040 line, the most frequently called IRS toll-free number, only 3% of callers reached a live person.

As president and CEO of the Massachusetts Society of CPAs, representing 11,000 CPAs and accounting professionals, I can verify that these numbers have translated into an avalanche of notices, bills, threats to taxpayers and countless hours wasted trying to correct them. like hours spent on hold only to be dropped by the now infamous courtesy disconnect, when the IRS decides you’ve been on hold long enough. It is not so-called ultra-wealthy tax evaders that this proposal seeks to target, but average taxpayers and small businesses whose refunds are unnecessarily delayed. This has resulted in increased compliance costs and an almost complete erosion of trust in our system.

I know all too well the impact this has on the average taxpayer and on our economy. I started my career at the Massachusetts Department of Revenue as Chief Enforcement Officer for the Child Support Enforcement Division. Obtaining payments on overdue child support was, in many cases, essential to the health and well-being of children who depended on this support. One of the most effective ways to do this was through automated enforcement — and the penalties were severe — on everything from bank levies to tax return interceptions to driver’s license suspensions.

Key to these enforcement actions was absolute confidence in the data in our systems. Otherwise, as is happening at the IRS today, staff would be spending more time fixing bad enforcement actions than they would be saving through process automation. From the department’s perspective, it was a loss of productivity. But for both custodial and non-custodial parents, the disruption to their lives and the continued support of their children was potentially devastating. Later as Deputy Commissioner, then Commissioner, at DOR, I had to manage the same balance. Clean data was not only critical to the effective use of reviews and automated data, but it also drove all enforcement activity.

Prior to returning to the DOR as Commissioner, I was a consultant to state and local governments and had the opportunity to consult with the Australian Tax Office for three years. Their goal was to make paying taxes in Australia cheaper, easier and more personalized. The idea was that the cost of compliance was as real a cost as paying taxes, and it was the government’s job to keep those costs reasonable. It was up to the IRS to provide excellent service and simplify voluntary compliance. Like the United States, Australia has a voluntary tax system, and voluntary compliance is what pays the bills.

IRS funding has been significantly reduced in recent years. According to the Congressional Budget Office, in fiscal year 2021, the IRS budget was $11.9 billion, more than $200 million less than 11 years ago, representing a 22% reduction in real terms. Given that 70% of the agency’s budget goes to people, this has led to drastic staff reductions without offsetting technological advancements. Much of the technology used by the IRS today is outdated, with major systems dating back to the 1960s.

Part of the strategy for dealing with staffing shortages from a revenue perspective was to use data to send automated notices (nearly 220 million a year) to taxpayers. These reviews are scary, disruptive and often wrong. Since returns and payments are not processed and calls from practitioners go unanswered, it follows that the data is not reliable enough to be used for automated enforcement.

The US tax system depends on trust that it will be administered fairly and competently and that our data will be handled correctly. Recent reports that the IRS shredded 30 million unprocessed documents were just the latest shocking development. The worst part? It was not surprising. The IRS’ recent performance has betrayed that trust in a catastrophic way, threatening the foundations of a voluntary system.

More than 98% of the $4 trillion the IRS collects each year comes from voluntary compliance, which means ordinary taxpayers and their representatives complete the required forms, make the required payments, and patiently wait for their refunds. What fuels these activities are simple processes, easy-to-access customer services, and technologies that work. There are more threats to revenue from botching these core activities than from cutting more active application activities.

There is no doubt that strong and fair enforcement is part of what we expect from the IRS. But until they’re funded enough to process returns, protect data, and answer the phone, they can’t effectively enforce tax law, and we shouldn’t be investing a penny in additional enforcement activity.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Amy Pitter is President and CEO of the Massachusetts Society of CPAs and a former Commissioner of the Massachusetts Department of Revenue.

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