National Taxpayer Advocate Nina E. Olson released her 2015 annual report to Congress on Wednesday, focusing on her concern that the IRS may be on the verge of dramatically scaling back telephone and face-to-face service it has provided for decades.
Nina Olson
Olson characterized the combination of reductions in personal service and the IRS’s plans to direct taxpayers with questions to preparers and other third parties (along with the expansion of user fees) as creating a “pay to play” tax system, where only taxpayers who can afford to pay for tax advice will receive personal service, while others will be left struggling for themselves.
Olson’s report reiterates a recommendation her office made in June that the IRS release its “Future State” plan documents, provide additional detail about their anticipated impact on taxpayer service operations, and solicit comments from the public. The report also recommends that Congress conduct oversight hearings on the plan.
Olson noted that since 2014, the IRS has invested substantial resources to develop a Future State plan, which has involved significant participation by virtually all IRS business units and the engagement of management consultants, at a cost of several million dollars. To date, the IRS has chosen not to make the plan public.
The Advocate’s report said there are many positive components to the plan, including the stated goal of creating online taxpayer accounts through which taxpayers will be able to obtain information and interact with the IRS. The report also acknowledges that cuts to the IRS budget —about 19 percent in inflation-adjusted terms since fiscal year 2010—have forced the IRS to explore cheaper service options.
In the budget passed by Congress last month, however, the IRS would receive $11.23 billion in fiscal year 2016, an increase of $290 million over the current level, specifically to improve customer service, better combat identity theft and improve cybersecurity.
Olson expressed particular concern about IRS intentions regarding what is not stated in the IRS’s Future State plan.
“Implicit in the plan—and explicit in internal discussion—is an intention on the part of the IRS to substantially reduce telephone and face-to-face interaction with taxpayers,” the report said. “The key unanswered question is by how much. . .It is incumbent upon the IRS to be much more specific about how much personal taxpayer assistance it expects to provide in its ‘future state.’”
The report said the IRS appears to presume taxpayer interactions with the IRS through online accounts will address a high percentage of taxpayer needs, enabling it to curtail existing taxpayer services without significantly impacting taxpayers. The Future State plan also calls for expanding the role of tax return preparers and tax software companies in providing taxpayer assistance—an approach that likely would increase compliance costs for millions of taxpayers who now obtain that assistance from the IRS for free.
The IRS Future State plan could transform the role the agency has long played in helping taxpayers comply with their tax obligations, according to the report. The IRS historically has maintained a robust customer service telephone operation that, in every year since fiscal year 2008, has received more than 100 million taxpayer telephone calls, as well as a network of nearly 400 walk-in sites that, in every year for over a decade, has provided face-to-face assistance to more than five million taxpayers.
Online accounts are likely to reduce taxpayer demand for telephone and face-to-face interaction to some degree but are unlikely to be useful in addressing complex account-specific matters, the report said. “This is true for several reasons, including that millions of taxpayers do not have Internet access, millions of taxpayers with Internet access do not feel comfortable trying to resolve important financial matters over the Internet, and many taxpayer problems are not ‘cookie cutter,’ thus requiring a degree of back-and-forth discussion that is better suited for conversation.” Last year, more than 9 million taxpayers either received post-filing IRS notices proposing to adjust their tax or experienced refund delays, all matters that are account-specific.
Technology improvements often do not reduce demand for personal service to the extent expected, the report pointed out. For example, the IRS over the past decade has increased the individual tax return e-filing rate from 54 percent to 85 percent, enhanced the Where’s My Refund? tool, and added substantial content to IRS.gov, yet the number of taxpayer calls to its customer service lines has increased by 59 percent. Similarly, the report cites a recent Federal Reserve survey in which 72 percent of mobile banking customers reported they had visited a branch and spoken with a teller an average of two times within the preceding month. The report said customers often use online service as a supplement to, rather than a substitute for, personal service, particularly for complex matters.
In recent years, the IRS has already begun to reduce taxpayer services, including by declaring all but simple tax-law questions “out of scope” for the IRS to answer during the filing season; declaring it will not answer any tax-law questions after the filing season (including questions from millions of taxpayers with proper extensions of time to file); eliminating preparation of tax returns in its walk-in sites; and eliminating an online program that allowed taxpayers to submit questions electronically.
IRS Response
The IRS responded to the report saying that it is working on a variety of long-term efforts to prepare for the future of tax administration, including improving taxpayer service. “These initiatives are focused on a goal of making taxpayer interactions with the IRS simpler and easier,” said a statement emailed by an IRS spokesman to Accounting Today. “These efforts are ongoing and have not been finalized, and the IRS emphasizes feedback from outside parties has been and will continue to be an important part of the process.
“The National Taxpayer Advocate’s report does not paint a full picture of these evolving Future State efforts,” said the IRS. “The Advocate seems to want the IRS to continue to do business the way we did 10 years ago. Our Future State work is fueled by taxpayer demand for new and different options for getting services, including expanding secure online options. The IRS remains fully committed to personal service to taxpayers, and the IRS believes increasing the availability of self-service interaction frees up in-person resources for taxpayers who truly need them, including those who are not comfortable online or don’t have personal access to a computer.”
Need for Transparency
Olson argued that the IRS needs to be more transparent about its plans. “We believe it is critical that the IRS share its plans in detail with Congress and outside stakeholders and then engage in a dialogue about the extent to which it intends to curtail or eliminate various categories of telephone service and face-to-face service, whether it will provide sufficient support for taxpayers—and how—as it transitions to its future state, and whether it has an adequate ‘Plan B’ if taxpayer demand for telephone and face-to-face service remains higher than the IRS anticipates,” the report said.
In releasing the report, Olson emphasized that Congress has repeatedly shown support for high-quality taxpayer service. In the IRS Restructuring and Reform Act of 1998, Congress directed the IRS to “review and restate its mission to place a greater emphasis on serving the public and meeting taxpayers’ needs.” Added Olson: “The fact that Congress just last month provided the IRS with an additional $290 million in funding for taxpayer assistance and codified the provisions of the Taxpayer Bill of Rights, including The Right to Quality Service, demonstrates that members of Congress continue to believe taxpayer service should be strengthened, not reduced,” Olson said.
House Ways and Means Committee chairman Kevin Brady, R-Texas, also voiced concern in reaction to Olson’s report. “When Americans contact the IRS, they need serious help—not another layer of bureaucracy,” he said in a statement. “This comprehensive report highlights significant problems taxpayers face when dealing with the IRS and raises serious questions about the agency’s commitment to making it easier for people to do their taxes. IRS employees’ main priority should be to deliver excellent customer service to hardworking taxpayers who fund our government and pay their salaries. Ways and Means members will continue to conduct rigorous oversight of the IRS and its plans in the months ahead.”