The Internal Revenue Service was unable to keep up with demand for telephone and correspondence services last tax season despite efficiency gains from processing more tax returns electronically, adding Web services, and shifting resources away from enforcement, according to a new government report.
In the
In the face of similar trends, last year the GAO reported that a drastic change in the IRS’s taxpayer service strategy was needed and recommended that the IRS take steps to better balance the demand for services with its available resources.
The GAO acknowledged this may require the IRS to consider some difficult tradeoffs, such as limiting some of its services. In response, the IRS has proposed eliminating or reducing some services for 2014 such as answering basic tax law questions only during the filing season.
However, IRS officials told the GAO the proposed cuts may not be enough to stop the deterioration in services. Until the IRS develops a strategy, it risks not being able to communicate its expectations about the level of services it can provide based on the resources available to the agency. The IRS could use such a strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance and resources, the GAO pointed out. Part of the problem stems from successive years of budget cuts at the agency.
Installment Agreements
The GAO also discussed ways the IRS can improve its approach to taxpayer installment agreements. The IRS offers several options for installment agreements to taxpayers who cannot fully pay their taxes when due. Taxpayers can enter into these agreements online, by phone and by mail, the GAO noted.
In fiscal year 2012, the IRS approved approximately 3.2 million new agreements and collected nearly $10 billion. The IRS devotes approximately 1,800 full-time-equivalent staff members to the program, but it is not as efficient as it could be, according to the GAO. The GAO found opportunities to standardize account entries and reduce some of the redundancy by eliminating dual entry of the same data on paper forms and into the IRS’s computer systems.
IRS Response
IRS officials agreed that opportunities did exist to streamline the process. More standardized and less redundant data entry could reduce need for extra resources.
The GAO recommended that the IRS develop standardized account entries and eliminate unnecessary redundancy in the installment agreement process. The IRS did not say, however, whether it agreed with the GAO’s recommendation on this point. But the GAO said it believes the recommendation remains valid as discussed in its report.
In addition, the GAO said it continues to believe that its prior recommendation, that the IRS should develop a strategy to define the appropriate levels of telephone and correspondence services based on an assessment of demand and resources, among other things, remains valid and should be addressed.
The IRS pointed to the constraints it has been facing from its budget cuts. “As noted in the report, the IRS faced the dual challenges of decreased resources attributable to continued reductions in funding and the effects of sequestration-related budget cuts,” IRS deputy commissioner for services and enforcement John M. Dalrymple wrote in response to the report. “Although reduced resources had a commensurate impact on the level of customer support we were able to provide throughout the year, it is important to note that actions were taken to maintain the highest levels of support possible throughout the filing season, when demand was at its highest levels. Staffing reductions and other sequestration-related cuts were forestalled until later in the year to minimize the impact to customer support. In 2014, we will continue to balance demand with available resources to ensure services are provided, to the greatest extent possible, in an efficient and cost-effective manner.”
Detecting Non-filers
The GAO report also examined why the IRS’s identification and notification to potential non-filers takes so many months after the original filing deadlines. The GAO explained that the IRS detects non-filers by matching third-party information, such as W-2 forms, with tax returns.
The first match is done in October, well after the mid-April tax filing deadline from the previous year, because of the time it takes to receive the third-party information and process it. The IRS sends notices to non-filers in November and December.
The IRS does a second match in March of the following year for taxpayers who have filed an extension. The IRS begins to send notices to cases from the second match between March and July.
According to IRS officials, not all potential non-filer cases identified are selected for notification and review. The IRS prioritizes cases based on factors such as income, the potential to collect taxes due, and whether the taxpayer is an IRS or other federal employee.
