National Taxpayer Advocate Nina Olson said in a report Wednesday the Internal Revenue Service ran a generally successful filing season this year, but it needs to assign more employees to taxpayer service instead of enforcement.

In her midyear report to Congress, Olson, who heads the IRS’s Taxpayer Advocate Service, praised the IRS for reducing the prevalence of identity theft this past tax season. The IRS put in place new requirements from Congress this year for accelerated Form W-2 reporting, allowing the IRS to match W-2 forms against returns claiming tax refunds to identify any possible fraud and mismatches. By the end of March, the IRS had received 222 million W-2 forms, a nearly 30 percent jump from the 171 million received by the same time last year, according to the report. There was a similarly sharp spike in the number of Forms 1099-MISC the IRS received in 2017 compared with 2016. By week 12 of this year, the IRS had received 31 million Forms 1099-MISC, more than 2.5 times the 12 million received by the same week last year.

Despite the success of the W-2 effort, Olson pointed out that taxpayers who need help from the IRS are still facing major challenges getting it. Part of the problem stems from resource constraints at the IRS, where funding has been cut nearly 20 percent by Congress since fiscal year 2010, after adjusting for inflation.

National Taxpayer Advocate Nina Olson
National Taxpayer Advocate Nina Olson testifies at a hearing of the House Ways and Means Oversight Subcommittee

The IRS has been taking steps to improve taxpayer service, using some extra funding that Congress provided last year for improving taxpayer service and helping identity theft victims and cybersecurity. Taxpayers benefited from higher service levels and reduced wait times on many key phone lines, the report acknowledged. On the other hand, the IRS curtailed service at many of its Taxpayer Assistance Centers around the country, requiring appointments at them.

“However, much of the IRS’s improved performance this year is attributable to reduced taxpayer demand for services,” said Olson’s report. “While fewer taxpayers attempted to contact the IRS on the telephone, the IRS also answered fewer calls. We also remain concerned about the IRS’s recent and continuing reductions in service for taxpayers, including declining to answer all but basic tax law questions during the filing season or any questions after the filing season, eliminating walk-in service at the TACs, and eliminating the ability of taxpayers to ask questions of the IRS online. The failure to meet the needs of taxpayers who rely on these services causes added stress for them and may reduce their willingness or ability to comply.”

Olson would like the IRS to allocate more of its budget to taxpayer service and de-emphasize enforcement. She noted that more than 60 percent of the IRS’s budget is dedicated to enforcement activities, but only about 4 percent is allocated for taxpayer outreach and education. As of Sept. 30, 2016, the IRS assigned only 98 employees to education and outreach efforts for the 62 million small business and self-employed taxpayers, and only 365 employees to education and outreach for the nearly 125 million individual taxpayers. The report pointed out that 14 states lack any Stakeholder Liaison employees who do outreach to small business and self-employed taxpayers. The number of Taxpayer Assistance Centers is going down each year. Thanks to the IRS’s new appointment-only system, taxpayers who show up at an office without an appointment are usually turned away. The TACs have stopped offering free tax preparation for low income, elderly, and disabled taxpayers and won’t answer “out-of-scope” tax law questions during the filing season. They also won’t answer any tax law questions outside filing season.

During filing season this year, the IRS answered 79 percent of the telephone calls it received on its “account management” phone lines. That was a 72 percent improvement over last year. Taxpayers also spent less time on hold, declining from 11.1 minutes in 2016 to 6.5 minutes in 2017.

However, taxpayer service was less successful on the IRS compliance phone lines, where service showed significant declines. The IRS received about 2.7 million calls on its “installment agreement/balance due” line, mostly from taxpayers who needed to make payment arrangements. The IRS answered only about 40 percent of those calls this past filing season, down from 76 percent last year, and wait times increased from 11 minutes last year to “a staggering 47 minutes” this year’s filing season, according to the report.

Olson recommended the IRS expand its outreach and education activities and improve its phone service. She added that Congress should provide the IRS with sufficient funding to do so.

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.