Taxpayer advocate: IRS budget cuts counterproductive

The latest report from the taxpayer advocate, a sort of independent watchdog housed within the IRS, comes as lawmakers on Capitol Hill are haggling over how to fund the tax collecting agency for the next fiscal year.

With rolling federal spending back currently in vogue, GOP appropriators in the House are pushing a package that would cut IRS funding by more than $600 million, to $11.5 billion, in fiscal 2012. 

Doug Shulman, the IRS commissioner, has said that shrinking the agency’s budget is counterproductive, as it restricts its ability to collect tax revenue, a view shared by Democrats. But Republicans have pushed back that previous hikes in the IRS budget have not led to improved tax collection. 

For her part, the taxpayer advocate signaled in her report that limiting the agency’s funding would lead to more automated, and less person-to-person, communication between the IRS and the taxpayer.

On one level, Olson said, increased automation could be a net positive if the IRS embraced electronic communication in new ways, such as directly contacting taxpayers on their mobile phones. 

But the advocate’s report also said that fewer resources means the IRS would not have the capabilities to deal with some of the tougher taxpayer cases. Olson added that the agency at times appears fine with that decreased discretion because the IRS is not totally comfortable dealing with taxpayers as humans. 

“Think about it – there are few more intimate acts that a person has with his government than to tell it about one’s family, income, expenses, losses, gains, educational activities, purchasing activities, retirement saving activities, and so on,” Olson wrote. 

The advocate’s report also took the IRS to task for not being concerned enough with taxpayers when it made preparations for a potential government shutdown earlier this year and also reiterated her call for the tax code to be simplified.