Taxpayer advocate: Slashing IRS funding hurts regular taxpayers

The IRS’s independent watchdog on Thursday urged lawmakers to increase the agency’s funding, saying its inadequate budget is hurting ordinary taxpayers.

Nina Olson, the national taxpayer advocate, stressed that it was especially galling for policymakers to craft such a byzantine tax code and then depress funding for the IRS as it tries to help people figure out how to comply with it. 

“It is a sad state of affairs when the government writes tax laws as complex as ours — and then is unable to answer any questions beyond ‘basic’ ones from baffled citizens who are doing their best to comply,” Olson wrote in her annual address to Congress.

That part of Olson’s report will likely find a fan in John Koskinen, the new IRS commissioner. Koskinen told reporters this week that IRS funding was likely to be the most “intractable” issue he’ll deal with as commissioner.

President Obama has asked for $12.9 billion in funding for the IRS this year. But the agency is currently operating close to $2 billion below that level, and even some $900 million below its 2010 funding level.

Olson, who has for years expressed concern about the IRS's budget, said in her report that the decreased funding levels have hurt the agency's ability to communicate with taxpayers almost across-the-board. The IRS was only able to answer roughly 6 in 10 phone calls it got from taxpayers last year, Olson said, down from 87 percent a decade ago.

Wait times on telephone calls have also increased dramatically, Olson added, and the IRS has recently announced that it will no longer help older, low-income and disabled taxpayers fill out their forms. The agency had helped close to a half-million taxpayers prepare their returns 10 years ago.

In her report, Olson acknowledged that it’s been a difficult year for the IRS, which was mired in controversy for much of 2013 over its targeting of Tea Party groups seeking tax-exempt status.

Besides sequestration’s impact on the IRS budget, Olson also said that the 16-day government shutdown forced the agency to delay the start of this year’s filing season.

Still, Olson's call for increased funding for the IRS will almost certainly fall upon deaf ears among the GOP. Congressional Republicans have pooh-poohed statistics cited by the IRS, Democrats and the taxpayer advocate that say that any funding increase handed to the IRS will bring back several times that amount in new revenue. The GOP's position has only become more entrenched since the agency acknowledged singling out conservative groups.

In her report, Olson did not weigh in on new proposed regulations that seek to place clearer limits on how much political activity tax-exempt 501(c)(4) groups can engage in.

But she did say that one of her longstanding proposals — a taxpayers’ bill of rights — would have given the IRS better tools to deal with tax-exempt applications, and that the agency had broken eight of the 10 planks in the proposed bill of rights.

“Had there been a published Taxpayer Bill of Rights, organizations applying for tax-exempt status, IRS employees processing their applications, IRS executives overseeing the program, and Congressional offices receiving complaints likely would have flagged the inconsistencies between the applicants’ rights and the IRS’s actions more quickly,” Olson wrote. 

The report also calls on the IRS to put in place clearer rules for taxpayer using bitcoins, and to same-sex couples both married and unmarried in the wake of the Supreme Court's decision to roll back the Defense of Marriage Act.