Trouble Brewing with IRS Service

National Taxpayer Advocate Nina E. Olson is concerned that there is a taxpayer’s rights crisis on our hands. She reported to Congress on how the IRS is having to administer a complicated code with too small of a budget that is only shrinking more, and this is leading to a decline in service that the IRS gives to taxpayers.

This has been a problem consistently, but Olson says that “’we’re at a tipping point.’” The IRS is under pressure to keep the tax gap smaller and they’re getting less funding to service taxpayers. These factors combined with the increase of enforcement funding and the pressure for revenue collection could get the IRS into trouble.

The IRS dismisses Olson’s warnings. Olson responds by sounding her warning that if we keep going down this road, there will be trouble that could be difficult to reverse. Some of the signs that Olson notes include:

• Overwhelming reliance on correspondence exams: Taxpayers are sent a letter that say their deductions will be disallowed unless they send in proof to justify the deductions within 30 days. But there is no name of a person to contact and some taxpayers end up having to pay extra tax because the IRS does not assess their response in time.
• Tremendous backlog of letters from taxpayers not attended to: In the last week of 2011, the IRS had 920,768 letters and 47% of those letters had not been looked at in over 45 days. Many of these letters never even go through human hands – it is all an automated process. People are sending in documentation to justify or back up their returns, but no one ever looks at it and an automated system continues sending them letters notifying them that they are deficient.
• Less taxpayer service by phone: In 2011, humans only serviced 70% of calls to the IRS. The other 30% either got a busy signal or hung up because they were tired of waiting.
• Non-exam exams: Non-exams include letters about failing to report income or math errors. But taxpayers don’t get the same appeal rights with these non-exams.
• Refunds delayed: The Accounts Management Taxpayer Assurance Program is tasked with placing freezes on refunds before money is sent out to stop fraudulent refunds. In trying to prevent fraudulent refunds though, about 116,000 potentially good taxpayers have to wait on their money and there is not enough staff to even sort the good taxpayers from the fraudulent.
• Operation Mass Mail: The IRS gets refund claims that are so outrageous the IRS won’t even process the return and they auto-void it. The trouble is that they do not let the taxpayers know that the return has been auto-voided so taxpayers do not get a chance to correct mistakes or explain how they tabulated their return. In 2011, the IRS found 429,108 claims to be auto-voidable, but it later determined that over 34,000 of those were returns from legitimate taxpayers. 

See Janet Novack, IRS Advocate: New Taxpayer Rights Crisis Is Brewing, Forbes, Jan. 11, 2012.