2015 Filing Season Won't be Pretty

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Those who would know best are saying that we need to be prepared for one of the worst filing seasons on record during the first quarter of 2015. What makes one filing season worse than another?  It has to do with the level of service that the IRS can provide to taxpayers.  How fast can they answer the phone when taxpayers call?  How fast and accurately can the IRS respond to taxpayer correspondence?  How efficiently will the IRS be able to process tax returns and refunds?

The IRS had a goal of answering 80% of incoming calls last season, but only managed to answer 72%.  This filing season it is predicted that the IRS may only be able to pick up 53% of the time with a 34 minute average hold time.

The IRS Commissioner, John Koskinen has identified a few main reasons why things look so bleak:

  1. The IRS doesn’t have enough money to operate the way it should.  Funding levels are lower than they have been in years.
  2. The IRS has been tasked with administering new programs such as the Affordable Care Act and the Foreign Account Tax Compliance Act with no additional funding from Congress.
  3. Implementation of a new voluntary return preparer oversight program will also increase work load for IRS employees.
  4. There are 50 or so “tax extenders” — laws that Congress needs to vote on and determine if they will be extended or not.  The uncertainty could delay the start of the 2014 tax season.

National Taxpayer Advocate, Nina Olson, has a way of stating things in the plainest terms.  She has generated some great sound bites over the years.  Here’s her take on the upcoming tax season:

The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.

I think these viewpoints have been colored by a recent TIGTA report that highlights “unfavorable trends” with the Automated Collection System (ACS).  Because the IRS does not have the resources to work cases properly, they have been “punting” many of them into Currently Not Collectible status or into the “queue” where cases can sit idle for months or years.  Consider yourself fortunate if you don’t have to interact with the IRS this tax season other than to file your return and wait for a refund check.

IRS Doctors & Nurses

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Have you seen the comments from former IRS territory manager, Michael Gregory, in a recent “Ask Me Anything” session on Reddit?  Many readers have felt dissatisfied with his answers because he seemed to be overly concerned with defending the IRS, defending Lois Lerner, and griping about underfunding.  I talk with the IRS every day and I must say that this guy is definitely “one of them.”  As a 28-year veteran, admittedly it would be difficult to remove oneself from that role and the IRS lingo, even after retirement.  But this guy went a little too far.  As one Reddit user pointed out, he almost sounded like an IRS lobbyist.  I totally agree, but let’s move on to something more substantive in his comments.

At one point Gregory compared IRS specialists to medical specialists:

The IRS has 13,200 revenue agents and about 2,000 specialists. I managed 1/4 of the country’s specialists in engineering and valuation issues, with specialization comes an added degree of due diligence and accuracy. It’s like if you go to a doctor you get referred to a specialist – the same thing is true at the IRS.

I do not disagree with this comparison.  But the problem should be obvious: there aren’t near enough specialists to go around.  Think of the ratio of 2,000 specialists to how many million taxpayers?!  Same with revenue agents (the tax doctors); 13,200 isn’t nearly enough.  So what happens is a vast majority of taxpayer accounts are handled by (to complete the analogy) the nurses of the IRS — the customer service reps.  There are too many inexperienced, undertrained, underqualified employees.  It can be very frustrating for taxpayers who reach out for help, and they just want to be able to resolve their tax issues and move on.  In many cases, if they could just get in touch with a doctor, the issue could be resolved the same day.  But in reality they often get bounced around from nurse to nurse and nothing gets accomplished.

The IRS (IRS insiders) would have you believe that Congress can throw money at this problem and make it go away, but money alone will not change it if all they do is increase the number of nurses.

Lawmakers Seek to Punish IRS and Reward TIGTA

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A House subcommittee led by Rep. Ander Crenshaw (R-Fla.) agreed on a spending measure that would cut the IRS’ budget by 24 percent in 2014.  And on the other side of the coin, the bill would mean a $5.5 million budget increase for TIGTA (Treasury Inspector General for Tax Administration), the agency that has brought to light so many of the recent IRS missteps.

The bill is meant to “crack down,” “clean house,” and otherwise encourage the agency to be more careful and responsible in its administration of the tax laws.  It would also specifically address most of the problems we have read about in the news these last several months:

  • political targeting
  • training videos
  • lavish conferences
  • employee bonuses

Basically it would withhold funding until the IRS implements TIGTA recommendations.  TIGTA’s primary responsibility is to keep an eye on the activities and procedures at the Internal Revenue Service.  They are continually conducting audits, reporting on their results, and offering “recommendations” to the IRS when it is shown that they have fallen short.  Well, lawmakers are now hoping to make certain recommendations mandatory — mandatory in the sense that if they don’t make the changes then they won’t get full funding.

But the bill still has a long ways to go: first to the full Appropriations Committee, then to the House floor, then on to the Democrat-controlled Senate where it will face plenty of opposition.

Fixing the IRS: Where do we Start?

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It’s no secret that the IRS makes mistakes, sometimes serious mistakes.  It may have been secret before (at least for the average taxpaying citizen) regardless of the Treasury Inspector General for Tax Administration (TIGTA) reports that highlight the agency’s deficiencies.  But in recent months the IRS has been under intense media scrutiny, bringing these reports out into the open in mainstream media outlets.

The problems at the IRS are the result of:

  • ineffective training
  • weak leadership
  • poor judgment
  • inexperienced employees
  • an overly-complex tax code
  • simple human error
  • insufficient funding

This is by no means a comprehensive list.  And it’s easy to lump them all together and imagine one comprehensive solution.  There are some who think all the problems can be fixed by increasing funding to the IRS.  They see this as the root of all employee development, training, and managerial issues.  This is perhaps the primary argument of IRS sympathizers; however, I’m not so sure there is an all-in-one solution for cleaning up at the IRS.

To use a recent example, why don’t IRS Revenue Officers (RO) always follow legal guidelines when seizing taxpayer property to cover unpaid taxes?  This is probably the most serious collection action that the IRS can take.  And besides going to prison, this is what taxpayers fear more than anything.  So, why do they get it wrong sometimes?  We can probably rule out “complex tax code” because the procedures for seizure of property are clearly laid out in the Internal Revenue Manual (IRM) so an RO has only to follow the steps.  But any of the other listed reasons could realistically apply.

Although I think it is impossible to narrow it down to one root problem, it is clear that there is quite a bit of overlap.  For example, an inexperienced employee is more likely to make simple human errors and use poor judgment in his work.  And lack of/ineffective training is a symptom of poor leadership.  This overlap is a good thing when contemplating solutions because it means that addressing one issue will automatically improve another.  It also means that once we get started on the task of fixing the IRS, we’ll already be closer to our goal than we think.

IRS Funding: Seems Adequate to Me

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Some say the biggest problem at the IRS is that they are not allocated enough money to be able to administer the tax laws fairly and competently.  Even Nina Olson, the National Taxpayer Advocate, has bought into this theory:

Today, the IRS is an institution in crisis. In my view, however, the real crisis is not the one generating headlines. The real crisis facing the IRS — and therefore taxpayers — is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.

~ Nina Olson, in her mid-year report to Congress

What’s ironic about this quote is it was released today along side juicy headlines about IRS employees using government credit cards to make some highly questionable purchases of alcohol, expensive meals, party supplies, and even porn.  Of course many of these purchases were made on cards that were reported stolen.  I’m sure that’s true because there is no way any IRS employee would abuse his card privileges.

I don’t know Nina, I usually agree with your opinions, but it seems to me that the crisis is fairly well summarized by the headlines.  Why downplay the high-profile mistakes that are so very telling of what’s going on at the IRS?  And how is it that the IRS’ mission has been “radically transformed”?  Regardless of any official mission statements, their mission has always been, and always will be, to collect as much revenue as possible without too much regard to fairness, tax relief, and taxpayer rights.

So if the “real crisis” is inadequate funding, then why should we turn a blind eye to outrageous spending abuse?  There is no way in this world we should increase funding to the IRS until they clean house.