IRS Report Card for 2012

Ever wonder how the IRS is graded and how it’s doing? Most of us have a perspective but the National Taxpayer Advocate (currently Nina E. Olson) is tasked with the specific job of reporting on how the IRS is doing and what needs to be improved. She released her annual report for 2012 this week and the IRS and Congress received poor marks in general – here are a few highlights:

1. The tax code is TOO complicated and should be simplified. As presently constituted, it’s a significant (Ms. Olson said “unconscionable”) burden on taxpayers. Since 2001, Congress has passed nearly 5,000 changes to the code – that’s an average of one per day. Compliance with the tax code requires 6.1 billion hours a year – representing one of the largest industries in the U.S.

And here’s a startling thought – if Congress were to eliminate all the income exclusions, exemptions, deductions and credits, straight math says individual income tax rates could be reduced by 44 percent and still generate the same amount of tax revenue – only taxpayers wouldn’t need to purchase software and hire tax professionals just to determine how much tax is owed.

2. Lack of IRS funding hampers services to Taxpayers. Operating on a current budget of $11.8 billion, the IRS has seen substantial budget cuts in past years and more are expected. As a result, the service levels at the IRS have substantially declined. For example, “since FY 2004, when taxpayer service levels peaked, the IRS’s performance in handling telephone calls and correspondence has been declining. In FY 2004, the IRS answered 87 percent of all calls seeking to reach a live telephone assister, and the average wait time was just over 2½ minutes. In FY 2012, the IRS answered just 68 percent of its calls, and those who got through spent an average of nearly 17 minutes waiting on hold. In FY 2012, the IRS received over 10 million letters in response to proposed tax adjustments, and at the end of the year, 48 percent of all taxpayer correspondence in its inventory had not been processed within established timeframes – up dramatically from 12 percent in FY 2004.”

Lack of IRS funding also results in less taxpayer friendly collection methods. Because of the short staff issues, the IRS employs a ‘ready, fire, aim’ approach to collections because it does not have the resources to check facts first, before pursuing collections. As a result, assessments (to name just one area) are imposed before actually speaking with taxpayers to determine if the assessment is justified.