As reports surfaced that the practical impact of President Trump’s $1.5-trillion tax cut caused sticker shock for many taxpayers who face having to write a check to Uncle Sam rather than get their customary refund, a government report found the five-week shutdown had crippled the Internal Revenue Service's ability to answer questions about how to navigate the new tax code.
In her annual review for Congress on the IRS's performance, Nina Olson, the Taxpayer Advocate, reported that even before the shutdown, the agency had more than 5 million pieces of mail waiting to be sorted along with 80,000 responses to audits that still needed to be addressed and 87,000 amended returns that still had not been processed.
Service Down 87%
And, as the mail continued to pile up and critical correspondence did not get out, the shutdown greatly diminished the ability of the IRS to answer phone calls from taxpayers. Comparing this year’s performance to last year, the level of service dropped by 87 percent with average wait times for an answer spiking by as much as 300 percent.
“Make no mistake about it, these numbers translate into real harm to real taxpayers,” Ms. Olson stated in her report.
About 88 percent of the IRS workforce was initially affected by the shutdown. The agency called back close to 36,000 employees to prepare for the busy tax-filing season.
The report, which was filed with Congress on Feb. 12, was welcomed by the National Treasury Employee Union, which represents 150,000 employees at 33 Federal agencies and departments.
Set Up for 'Collapse'
“Today’s report brings into sharp relief just how difficult it is for an underfunded, understaffed agency to function at a high level when most of its workforce was locked out for a month before the start of the filing season,” said Tony Reardon, the national president of the National Treasury Employees Union. “I don’t know how anyone can read this report and not be alarmed at the massive amount of damage that has been done to the agency’s workforce and the taxpayers they want to serve.”
Ms. Olson also concluded that the shutdown, the longest in the nation’s history, further undermined the IRS's ability to function after years of workforce reductions that cut 22,000 full-time employees and slashed $715 million in funding since 2010.
The Taxpayer Advocate also warned that the failure to upgrade agency technology for decades was now posing an unacceptable level of risk for a "catastrophic systems collapse."
“The IRS desperately needs to replace its antiquated technology systems,” according to the report. “Indeed, this is the agency’s #1 need. Last year, the IRS experienced a systems crash on the final day of the tax-filing season, forcing the IRS to extend the filing season by a day. The crash prompted talk of the risk of a catastrophic systems collapse, and that risk does, indeed, exist.”
It Gets Worse
The report continued, “But there is a greater risk: IRS performance already is significantly limited by its aging systems, which and if those systems aren’t replaced, the gap between what the IRS should be able to do and what the IRS is actually able to do will continue to increase in ways that don’t garner headlines but increasingly harm taxpayers and impair revenue collection.”
According to Ms. Olson’s analysis, the IRS has unsuccessfully tried for the last 25 years to upgrade its computer systems, which are the oldest in the Federal Government, and store the official record of taxpayer accounts—the Individual Master File and the Business Master Files.
Taxpayer information is stored in more than 60 separate case-management systems, so the agency has no integrated 360-degree view of taxpayer data. That inability to easily zero in on who owes what from when has major consequences for the IRS’s ability to make sure the government receives the revenue to which it is entitled.
“The IRS has no enterprise case-selection system, so it can’t be sure it is focusing on the right taxpayers or the right issues in its outreach, audit, and collection activities,” according to Ms.Olson’s findings. “And that matters a great deal because the IRS is effectively the accounts-receivable department of the Federal Government. In fiscal year (FY) 2018, it collected nearly $3.5 trillion on a budget of $11.43 billion—a return on investment of about 300:1.”
Decimated By Congress
Yet, despite the promise of a strong rate of return from an information-technology upgrade for the U.S. Treasury in identifying and collecting additional revenue, the until-recently Republican Congress has presided over a major reduction in spending for IRS technology upgrades—provided through the Business Systems Modernization account. BSM funding was reduced by 62 percent from FY 2017 ($290 million) to FY 2018 ($110 million) and constituted just one percent of the agency’s overall appropriation in FY 2018.
“Congressional funding for the BSM account has been limited in part because the IRS has not done a good job of planning and executing technology upgrades in the past,” Ms. Olson wrote. “Given the additional revenue and improved taxpayer service state-of-the-art technology is likely to bring in, I believe spending for new systems going forward should be measured in billions—not millions.”
Her report also found further corroboration of its earlier conclusion that Congress’s revival of privatizing IRS back-taxes collection was disproportionately affecting taxpayers who were the most financially vulnerable.
'Privates' Come Up Short
Ms. Olson has long warned that reliance on private debt-collectors was not only resulting in the targeting of taxpayers too poor to go after, but actually was costing the government more than it was bringing in. The National Taxpayer Advocate found that in the 2018 fiscal year, the private debt-collectors had only brought in 16 percent of the revenue that was originally projected, and 44 percent of the taxpayers who made payments to them were at or below 250 percent of the Federal poverty level.
“With unacceptable frequency, the IRS (private debt collection) initiative as implemented continues to burden taxpayers who, according to IRS standards, cannot afford to pay for their basic living expenses,” the report stated.