IRS in-house watchdog calls agency's taxpayer service 'woefully inadequate'

IRS in-house watchdog calls agency's taxpayer service 'woefully inadequate'

The IRS’s in-house watchdog on Thursday criticized the agency’s taxpayer service as “woefully inadequate” and said that many taxpayers who needed help from the IRS during the recent filing season had a challenging experience.

In her final report to Congress before she retires, National Taxpayer Advocate Nina Olson said that the IRS had a “generally successful filing season for most taxpayers,” but that the agency had a lower level of service on its phone lines compared to the 2018 filing season and the IRS provided face-to-face assistance at its taxpayer assistance centers to fewer people.

The IRS faced a lot of challenges during this year’s filing season. It began just after a 35-day government shutdown ended and was the first filing season in which taxpayers filed returns that reflected many of the provisions in President TrumpDonald John TrumpFlorida GOP lawmaker says he's 'thinking' about impeachment Democrats introduce 'THUG Act' to block funding for G-7 at Trump resort Kurdish group PKK pens open letter rebuking Trump's comparison to ISIS MORE’s tax-cut law.

Olson said in her report that most people received tax refunds in a timely fashion but was critical of the IRS’s telephone service.

During the 2019 filing season, the IRS had a level of service on its accounts management phone lines of 67 percent, down from 80 percent during the 2018 filing season. However, the way the IRS reports phone service numbers can be misleading, and only 23 percent of callers actually talked to an accounts management assistor, according to the report.

The report said that telephone service was even worse on other IRS phone lines, including the line that taxpayers call when they can’t pay their tax liabilities in full and want to arrange a payment plan. That line received a 13 percent increase in calls during the 2019 filing season. Olson said that a possible “unintended consequence” of the tax law was that there was a nearly 6 percent increase in the number of tax returns with a balance due to the IRS.

Olson noted that because of the shutdown, there was a delay in training for most new customer-service representatives hired to answer calls and resolve tax issues.

In early 2018, the IRS issued new guidance on tax withholding from people’s paychecks to reflect major parts of the GOP tax law.

The IRS announced that it would provide underpayment penalty relief for some taxpayers as taxpayers adjusted to the new withholding tables. However, only a small percentage of taxpayers who were eligible for the relief actually requested a waiver for penalties, the report said.

“While the IRS should be applauded for providing penalty relief to under-withheld taxpayers by lowering the payment threshold, the additional burden the IRS has placed on these taxpayers by requiring them to apply for this relief is unnecessary,” Olson wrote. She recommended that the IRS systemically waive the penalty for eligible taxpayers, but the IRS said it wouldn’t be able to do that.

In addition to highlighting a decline in the telephone level of service during the filing season, Olson in her report also criticized Trump’s fiscal 2020 budget proposal for calling for an increase in funding for IRS enforcement but a decrease in funding for taxpayer services.

“There is no doubt that budget constraints have limited the IRS’s taxpayer service capacity, but the IRS should not blame Congress for a lack of taxpayer services funding when it is itself proposing to shift funding away from taxpayer services,” she wrote. “What’s more, budget constraints can’t be used as an all-purpose excuse for mediocrity.”

The IRS has been focusing much of its customer-service efforts on online accounts, which are less expensive for the agency. But Olson said the IRS’s approach is problematic because research shows customers often prefer personal contact for certain financial transactions.

“This foolhardy approach has significant consequences for taxpayer rights and trust in the IRS and creates downstream consequences for compliance,” she wrote.

Olson also criticized the IRS for putting taxpayers who owe the agency money into installment agreements even when the taxpayers have economic hardships. She said that her office has developed an algorithm that could identify when a taxpayer is at risk of having an economic hardship and recommended that the IRS could use the indicator to trigger a pop-up screen when a taxpayer at risk of economic hardship calls the agency.

Olson started her job as the IRS’s in-house watchdog in 2001, and she is retiring July 31.

“I am enormously grateful for the opportunity I have had to advocate on behalf of our nation’s taxpayers,” she wrote.