Taxpayer Advocate Warns IRS Needs More Money to Implement New Tax Law

Chris Gaetano
Published Date:
Jan 11, 2018

National Taxpayer Advocate Nina Olson, in her most recent report to Congress, noted that the IRS will require nearly $500 million in FY 2018 and FY 2019 to implement the provisions outlined in the new tax law passed last month. 

"The IRS estimates that it will need about $495 million in FYs 2018 and 2019 to implement Public Law 115-97, including programming and systems updates, answering taxpayer phone calls, drafting and publishing new forms and publications, revising regulations and issuing other guidance, training employees on the new law and guidance, and developing the systems capacity to verify compliance with new eligibility and documentation requirements. The IRS has identified 131 filing season systems that will be impacted by the new legislative provisions which, among other things, include incorporating new individual and business tax rates, gradual inflation indexing changes for deductions and credits, threshold changes repeal, removing existing credits from systems, and updating fraud detection filters," said Olson in her report. 

Olson noted that other periods of significant tax reform also required additional resources in order to implement the new rules. Following the 1986 overhaul, for example, call volume increased by 14 percent, and the IRS hired an additional 1,300 staff, increased phone capacity by 30 percent, and expanded hours and phone service to Saturdays. 
This new law has been passed, though, during a period of year-over-year diminishing IRS resources. IRS funding has gone from $13.6 billion in 2010 to $11.2 billion in 2016, and the trend does not appear to be stopping anytime soon. Fewer resources, in turn, has meant fewer personnel, which has hobbled IRS operations. The IRS Criminal Investigation Division, for instance, has lost 21 percent of its agents since 2011, which has meant fewer cases are opened: between this year and last year the Criminal Investigation Division opened 376 fewer cases and recommended 510 fewer prosecutions. Identity theft cases in particular have plummeted over the years, with 2017 seeing only 374 such cases being opened, versus 1,492 in 2013, when they peaked.

Staffing cuts have also affected the number of auditors available to pursue cases, which in turn has affected total audit revenue coming into the federal government. At the same time, the IRS has been increasing its use of "unreal" automated audits. For example, in 2014, the IRS conducted 1.2 million traditional audits, but 8.2 million unreal audits. Olson said that, since these audits are counted differently than traditional ones, and that subject of these audits have fewer rights, the IRS has been obfuscating the full extent of its enforcement activities. 

Olson also pointed out that lack of resources has also led to poorer taxpayer service, especially when it comes to answering inquiries. The Taxpayer Advocate estimates that, in 2018, only four in ten taxpayers reaching out for assistance will ever reach a live person on the other end. While the IRS is increasing its focus on online support systems, Olson said that this does not adequately meet the needs of a widely diverse taxpayer population. 

Not helping is the use of private collection agencies to address delinquent taxes. Olson said that, first, it's simply not bringing in enough money to justify the expense: while private agencies brought in $6.7 million in payments, the program overall cost $20 million. The report also noted that private collection agencies had been assigned $920 million in inactive receivables. It added that the program also disproportionately targets lower income taxpayers.  

The report also talked about the growing number of unqualified organizations getting tax exempt status, issues with the passport denial and revocation program, reductions to employee trainings, lack of attention to taxpayer rights, the need for additional outreach and education, the cuts to the number of IRS walk-in sites, restrictions on the VITA program, issues with administering the EITC, need for improvement on assistance to military taxpayer, the lack of adequate IRS guidance on sharing economy income, problems with the IRS's approach to credit and refund claims of nonresident aliens, the IRS's failure to understand and effectively communicate with the ITIN population, unreasonable restrictions on in-person conferences for campus cases, the negative impact of the IRS decision to expand participation of counsel and compliance personnel in appeals conferences, the need to adapt to new identity theft techniques, the need to improve fraud detection, and the negative impact that refund anticipation loans have on the taxpayer population. 

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