The Internal Revenue Code requires National Taxpayer Advocate Nina Olson to submit a report to Congress each year identifying, among other things, 20 of the most serious problems encountered by taxpayers, and to make administrative and legislative recommendations to mitigate those problems.
Details of the problems facing taxpayers, described in the just-released report, are so voluminous that the executive summary alone is over 80 pages.
But the most important problem, affecting taxpayer service as well as reduced tax compliance, is the fact that the IRS does not receive adequate funding to do its job. Tied to this is the “mission creep,” which has led a myriad of non-tax compliance tasks to be dumped on the agency.
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The report contains a study analyzing the evolution of modern U.S. tax administration from its inception in 1913. This is necessary, according to Olson, because of the lack of understanding about taxation in public discourse today.
“What began as a system that focused primarily on revenue raising and affected only the most affluent and elite taxpayers grew massively during World War II to raise funds for the war effort, and drew the middle class into the taxpayer base,” said the report. “From the latter part of the 20th century through today, the system has grown further to encompass the low income population and have its mission expanded by Congress from being primarily the federal government’s revenue collector to become a favored disburser of government payments and benefits as well.”
“The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut,” Olson said. “This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers—and at the same time reduces the IRS’s ability to deliver on its core mission of raising revenue.”
The report appropriately quotes former Commissioner of Internal Revenue Mortimer Caplin: “There may be a tendency to overcentralize Operations, to overextend capabilities, and, yes, to capitulate to overmechanization and underhumanization of tax administration. In brief IRS must constantly weigh machine capability against the actual and psychic costs to the nation.”
Of course, the increasing reliance on mechanization and its resulting “underhumanization” are necessitated by the limited resources that the IRS has to accomplish its mission. Olson points out that despite the huge expansion in the IRS workload, Congress has reduced IRS funding in each of the last two years.
When I spoke with former Commissioner Caplin a year ago, he agreed that the role of the IRS in disbursing social program benefits tended to dilute its original mission of collecting tax revenue. “This has produced a great loss of revenue, because the Service has to focus attention on the wrong returns,” he noted.
And instead of having an annual appropriation, which gets examined yearly, the programs get into the Tax Code but never get out. “It is more difficult to amend the Internal Revenue Code than cut an appropriation,” he said.
Given the fact that every dollar spent on the IRS results in a multiple of revenue coming in, the underfunding of the IRS in recent years is inexplicable. Of all the programs and special interests funded by the government, this agency is the one that makes everything else possible. And if we really want the IRS operating at a more human level, we should be prepared to more adequately fund it.
The imbalance between the IRS workload and its resources is becoming unmanageable, cautioned Olson:
“It is up to Congress to ensure that the IRS continues to be effective, either by reducing the IRS’s workload or by providing adequate funding to enable it to accomplish its assigned mission.”
7 Comments
THE OIC (OFFER IN COMPROMISE) PROGRAM IS THE BIGGEST JOKE. YOU GO THROUGH THE CALCULATIONS TO SEE WHAT THE TAXPAYER CAN AFFORD TO PAY AND THEY PROMPTLY DISREGARD THAT FIGURE AND MULTIPLE THAT NUMBER (WHAT THEY CAN AFFORD)SEVERAL TIMES. WELL IF THEY CAN ONLY AFFORD A CERTAIN NUMBER BECAUSE THAT IS ALL THE MONEY THEY HAVE LEFTOVER IN THE MONTH, WHY WOULD YOU MULTIPLE THAT NUMBER TO A FIGURE THEY CAN'T AFFORD ? THEY DON'T HAVE THAT EXTRA MONEY TO BEGIN WITH. YOU EITHER GET A HUGE BREAK BECAUSE YOU ARE DEEMED DESTITUTE (NO MONEY, NO INCOME ETC.) OR THEY HAVE THIS CONVOLUTED FORMULA THAT IS NOT BASED IN REALITY OF THE REAL WORLD.
Posted by: tazman1963 | January 20, 2012 1:07 AM
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Rubycpa:
I do not know where your supposed information of working 30 hours per week comes from, and that may be the total productive hours of many workers, both in govt and private. Including you.
I have seen returns so bad that it is hard to find lines that are correct. I am amazed that accountants charge clients for some of the work they do. I suppose, given the low percentage of exams, the thought process is that you got away with it in the years you were not examined.
If they wanted to look at every line, it may have had to do with ratios.
As for the husband/wife letters, 2009/2010 returns being assigned now often have different marital situations than in the past. Once the couple is established by their oral testimony or other means as together, letters are no longer mailed separately. If one spouse has moved, the letter should/would be forwarded by PO, or returned.
Posted by: Formergeek | January 18, 2012 9:20 AM
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I suppose the only way, the IRS Code could be simplified is to require members of Congress and the President to prepare their tax retuns themselves so they would know how complicated the Code is. The late Mr. Newton Becker of the Becker CPA Review Course used to joke that the CIA can break any code except the Internal Revenue Code.
Posted by: Linor34b | January 17, 2012 1:18 PM
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Get rid of all the bloated middle and upper management, and focus on hiring competent auditors, collectors, and advisors. I went to a college career fair last year where an IRS recruiter was bragging about how anyone with a 4-year degree in any discipline can get a $50K/year job just answering phones for customer service. The more education you have, the more your salary automatically increases. This is fundamentally wrong. People with philosophy majors have minimal knowledge of finance and taxation, all they can do is read from scripts fed to them by a computer (the same of which can be found by the TP online). If you are going to pay someone $50K/year to answer phones, at least require them to have an accounting or finance degree, and preferably some experience working with the tax code as a preparer. And get rid of the legions of middle and upper level managers who each own some little isolated silo project, but have a whole staff dedicated to a very small minority of agency business. The IRS has plenty of funding to do its job, it just needs to focus on using what it has more efficiently.
Posted by: manetco | January 17, 2012 12:41 PM
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If it were me, I would have written that other things were the biggest problems at the IRS including incompetent staff at all levels, an aggressive revenue raising attitude that often results in the IRS bending or ignoring rules & long established practices and auditors who think they should be compensated on a percentage basis. In my opinion, the IRS mandate should be insuring tax law is fairly administered across the wide breadth of the tax paying public.
The law is the law. Everyone must obey it, but everyone also has the right
Posted by: re@elliscpafirm.com | January 17, 2012 12:14 PM
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Response to Former Geek
As auditors we are not paid based on results..this is inherently unethical. You work an average of 30 hours a week at best...you're overpaid. If you want to get paid based on incentive then you should be in sales....
The Service apparently in an effort to increase its revenue is emphasizingits authority to look at all items on a tax return without regard to taxpayers rights or its own Internal Revenue Manual. I had a new agent and a manager in separate audits tell me that they can look at every single item,one a corporate return with 30 million in sales. Apparently IRS is scrammbling for revenue at any cost. Its budget shoulde be reduced until it becomes more efficient,i.e.letters are sent separately to husband and wife at same address...Wheres the logic?
Posted by: Rubycpa | January 17, 2012 11:46 AM
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The cuts are being felt as an insider. Last year, I produced agreed results of near $3 million from examinations, performed alone. For this, I am paid a salary under $65,000 and am told we will remain on a pay freeze. Rather than working my tail off, I will find work on the side. The results I produce are normally only 80% of what the taxpayer should have paid. The difference is due to the time needed to use a fine tooth comb. Not worth it.
And, I have to prepare to enforce the health care initiative. Another task that should fall under HHS, whose auditors have more time and far less to do.
Posted by: Formergeek | January 17, 2012 9:36 AM
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