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IRS Should Improve Efficiency To Counteract Reduced Funding

by Mike Godfrey,, Washington

25 April 2014

The United States Government Accountability Office (GAO) has released a report that points out that, while the Internal Revenue Service (IRS) has suffered around US900m in budget cuts over the past four years, there are further opportunities for it to achieve greater efficiency.

Firstly, the GAO notes that the financing of the federal government depends largely on the IRS's ability to administer the tax laws (with the IRS collecting 93 percent of all government revenue), and each tax filing season (which ended this year on April 15) is an enormous undertaking during which the IRS processes most tax returns and provides services to millions of taxpayers, including telephone, correspondence and website assistance.

Because of the size of the IRS's budget and the importance of its programs, including those key taxpayer services, GAO was asked by leading Congressional Republicans to assess the 2014 tax filing season and to review the agency's fiscal year 2015 budget request.

It had previously been confirmed by the IRS Commissioner John Koskinen that taxpayers would have to exercise patience in 2014 when trying to contact the agency, as it, for example, would not have been able to answer 30 percent of calls made to it.

Within the Federal Government's budget for the 2014 fiscal year, the IRS was allocated only USD11.3bn – more than USD500m below its 2013 budget; much less than the almost USD13bn originally requested by the Administration; and significantly below the budget Koskinen had previously said the agency would need to tackle tax collection, identity and return fraud, and the additional tax provisions within the Affordable Care Act.

While it has been noted that, on average, the IRS spent 41 cents to collect USD100 in tax revenue during the 2013 fiscal year, matching the low-cost results in 2008 and 2001, IRS funding and staffing have been cut by 8 percent since 2010, despite a steady increase in the agency's workload. Overall, from budget cuts and sequestration, IRS funding cuts have led to a decline of more than 8,000 full-time employees over the past three years.

In her last report to Congress, the National Taxpayer Advocate Nina Olson commented "on the serious toll underfunding and insufficient IRS staffing is taking on America's taxpayers." Olson made clear that she primarily attributed deficiencies in taxpayer service to a lack of IRS resources.

The GAO itself notes in its report that the decline in IRS appropriations has caused significant staffing declines and "uneven" performance at the agency, with performance in enforcement and taxpayer service having to decrease or fluctuate over different tax seasons.

It finds that the IRS has absorbed approximately USD900m in budget cuts since the 2010 fiscal year through savings and efficiencies and by reducing, delaying, or eliminating services. For example, the agency has delayed two information technology projects (Information Reporting and Document Matching and Return Review Program) and substantially reduced employee training.

However, the GAO also reports that additional funding, with President Barack Obama requesting a large budget increase for IRS to USD12.5bn in fiscal year 2015, "is not the only solution" to helping an improvement in IRS's operations.

It cites opportunities that could help IRS to more strategically manage its operations and may help it achieve efficiencies over time, such as developing a long-term plan to improve web services. In fact, this month, the IRS has reported that such a strategy for its web services will not be completed until February 2015.

In addition, for example, the GAO recommends that the IRS should outline a strategy that defines appropriate levels of telephone and correspondence service and wait times, and lists specific steps to manage services based on an assessment of time frames, demand, capabilities and resources, while it should also review disparities in the ratios of direct revenue yield to costs across different enforcement programs, and then determine whether it provides a basis for adjusting IRS's allocation of enforcement resources each year.

TAGS: individuals | compliance | tax | tax compliance | training | law | employees | budget | Internal Revenue Service (IRS) | enforcement | tax authority | United States | services | Tax

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