Instead of going toward improvements in technology, more than half of the Inflation Reduction Act’s $80 billion in new revenue for the Internal Revenue Service would be allocated to enforcement actions. Amy Pitter, a member of the Massachusetts Society of Certified Public Accountants, discusses the reasons why there ought to be a greater emphasis placed on technology, customer service, and payment processing.
Regardless of your political leanings, I believe that we can all agree that the Internal Revenue Service (IRS) is underfunded, understaffed, and possesses ridiculously out of date technology, which precludes it from doing even its most fundamental responsibilities in a competent or effective manner. Although I am relieved that the Inflation Reduction Act would provide significant financing for the Internal Revenue Service (IRS), I continue to be annoyed by the excessive emphasis placed on activities related to enforcement. More than half of the increased money of $80 billion would be allocated to these operations rather than improvements to technology, improved customer service, or the processing of tax returns, payments, and other documents.
Let’s go over the current situation with the IRS and see where we stand. The report that the Taxpayer Advocate delivered to Congress in 2022 was damning. Key discoveries were:
At the end of the tax filing season in 2021, the Internal Revenue Service (IRS) was faced with a backlog of more than 35 million individual and company income tax filings that needed to be processed manually for a number of reasons. Some of the returns had been revised, some had been submitted on paper, and some had failed the automatic tests. The bad news is that all of these returns now require human interaction, which means processing will be further delayed, which places an additional strain on normal taxpayers who are stuck waiting for their money.
The Internal Revenue Service (IRS) reported receiving 167 million phone calls during the filing season, which is more than four times as many calls than during the 2019 filing season. During the busiest part of the season, the number of calls that came in was an astounding 1,500 per second.
The understaffed government agency was not even close to being able to handle the volume of calls it received; it reported a level of service of only 15% on its telephone lines dedicated to account management, and only 7% of taxpayer calls were connected to genuine customer care representatives.
Only three percent of callers ever get through to a real person when they dial the IRS’s 1040 line, which is the agency’s busiest toll-free number.
As the president and chief executive officer of the Massachusetts Society of Certified Public Accountants, which represents 11,000 CPAs and other accounting professionals, I can confirm that these numbers translated to an avalanche of incorrect notices, bills, and threats to taxpayers, as well as countless hours wasted trying to correct them—as well as hours spent on hold only to be dropped by the now-famous courtesy disconnect, which occurs when the IRS decides that you have been on hold for long enough. It is not the so-called ultra-rich tax avoiders that this proposal intends to target; rather, it is normal taxpayers and small businesses whose refunds are being delayed for no good reason. Because of this, the expenses associated with compliance have skyrocketed, and confidence in our system has nearly disappeared entirely.
I am all too familiar with the effects that this has on regular taxpayers and on our economy as a whole. My first position in the workforce was with the Child Support Enforcement Division of the Massachusetts Department of Revenue, where I served as chief of enforcement. Receiving payments for delinquent child support was, in many instances, essential to the health and well-being of the children who were dependent on the support that was owed to them. The automatic implementation of harsh punishments, including bank levies, tax return intercepts, and driver’s licence suspensions, was one of the most effective ways to accomplish this goal, and it was also one of the most efficient ways to do it.
The unwavering faith that we had in the accuracy of the data stored in our systems was essential to the success of these enforcement efforts. Otherwise, as is the case at the Internal Revenue Service (IRS) right now, employees would have to spend more time correcting improper enforcement actions than they would have saved by automating the processes. That amounted to a loss of production on the part of the department. However, the disturbance to the lives of both the parents who had custody of the children and the parents who did not have custody of their children had the potential to be extremely detrimental. In later roles at the DOR, first as deputy commissioner and then as commissioner, I was responsible for maintaining the same equilibrium. Not only was having clean data essential to making good use of notifications and automated data, but it was also the driving force behind all enforcement actions.
Before accepting the position of commissioner at the Department of Revenue, I worked as a consultant for state and local governments. During that time, I had the opportunity to consult for three years with the Australian Tax Office. They wanted to reduce the burden of paying taxes in Australia while also making the process simpler and more individualised. The concept behind this was that the cost of compliance was a real cost, just like the cost of paying taxes, and that it was the government’s responsibility to keep those costs within reasonable bounds. It was necessary for the department of taxes to provide excellent service and simplify the process of voluntary compliance. The tax system in Australia, like the tax system in the United States, is based on voluntary compliance, and voluntary compliance is what pays the bills.
In recent years, the Internal Revenue Service has seen severe budget reductions. According to the Congressional Budget Office, the budget for the Internal Revenue Service in the fiscal year 2021 was $11.9 billion. This is over $200 million less than the budget that the IRS had in the same year 11 years prior, which represents a 22% reduction in real terms. The fact that humans account for 70 percent of the agency’s budget has led to severe reductions in staff, yet there have been no commensurate improvements in technological capabilities. The Internal Revenue Service (IRS) is using largely outmoded technology at this time, with many of its core systems going back to the 1960s.
The use of data to send automated notices to taxpayers, at a rate of approximately 220 million per year, was a component of the plan for handling staff shortages from the perspective of revenue management. These messages are not only unsettling and distracting, but they are frequently incorrect as well. Given that tax reports and payments are not completed and that phone calls from practitioners go unanswered, it implies that the data are not reliable enough to be used for automated compliance monitoring and auditing.
The belief that the tax system in the United States will be administered fairly and competently and that our information will be handled appropriately is essential to its functioning. The revelation that the Internal Revenue Service (IRS) destroyed 30 million papers that had not yet been processed is only the most recent stunning event to take place. What’s the worst of it? It shouldn’t have come as a surprise. The recent performance of the Internal Revenue Service has been a catastrophic betrayal of that trust, which threatens the foundations upon which a voluntary system is built.
Over 98% of the $4 trillion that is collected annually by the IRS is accomplished through voluntary compliance. This involves regular taxpayers and their representatives submitting the required forms, making the required payments, and patiently waiting for their refunds. These activities are powered by straightforward procedures, user-friendly and easily accessible customer service, and effective technological solutions. There is a greater risk to income when those fundamental tasks are not carried out properly as opposed to when more active enforcement activities are scaled back.
Read more:-
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- Rep. Herrera Beutler of Washington Has Dropped Her Re-Election Bid
There is no doubt that we anticipate the Internal Revenue Service will enforce the law in a manner that is both fair and tough. However, until they have adequate funding to process returns, protect data, and answer the phone, they will be unable to successfully enforce the tax law, and until that time, we should not invest even one cent in extra operations related to enforcement.
