In the introduction to her recent report to Congress, IRS National Taxpayer Advocate (NTA) Nina Olson warns that recent expansion of the IRS mission is straining some of its core capabilities (National Taxpayer Advocate, Report to Congress: Fiscal Year 2011 Objectives (June 30, 2010)). The NTA lays out the numerous instances in which Congress has assigned the IRS “social benefit” missions that have placed the IRS in the position of processing billions of dollars of benefits to millions of taxpayers. She points specifically to the economic stimulus payment program, making work pay credits, first-time homebuyer credits, and hybrid car credit payments—all of which she projects will be dwarfed by the responsibilities that accrue to the IRS under the recently enacted health care legislation.
While the report credits the IRS with having successfully accomplished myriad new tasks—often under severe time and resource constraints—it warns that those successes have taken a toll on the IRS’s core taxpayer service capacity. As evidence of the strain imposed by the mission creep, the NTA reports that taxpayers and practitioners must routinely wait an average of 10 minutes to get through to the IRS on the phone; in that process, more than 25% of those taxpayers who wish to reach a live assistor are unable to do so. She also reported that as of June 19, 2010, over half of all individual taxpayer correspondence in the adjustment inventory was “overage” (i.e., the IRS had not responded promptly). Commenting further on the expansions of the IRS mission, the NTA expresses an overarching concern that the expanded mission has come at a magnitude and pace that has required the IRS to build and modify systems “on the fly,” a condition that could produce errors that may erode public confidence in the IRS’s performance.
The NTA does not call for a retreat to a tax-only mission. She acknowledges the infeasibility of turning the clock back, but she calls on Congress and the administration to adequately resource and explicitly acknowledge the IRS’s expanded mission. In what will likely be a controversial suggestion both inside and outside the IRS, the NTA goes so far as to suggest that the IRS revise its mission statement to reflect the organization’s “dual mission.”
In Olson’s view, an expanding IRS mission places the greatest demands on taxpayer service capabilities (e.g., processing, phones, and correspondence). According to the report, increased demands on taxpayer service resources have come during a period in which such resources have been shrinking. Between 2004 and 2011 (projected), inflation-adjusted spending for IRS enforcement activities has reportedly increased by 17.9%, while spending for taxpayer service programs has declined by 6.8% (NTA, Report to Congress at vi). In the NTA’s view, the drawdown in taxpayer service resources will make it increasingly unlikely that taxpayers will have their problems addressed by the IRS at the first point of contact. More broadly, she worries that the failure to recognize and adequately resource the IRS’s dual mission will lead to “perverse effects.” One such effect is the tendency to move more and more taxpayer interactions into automated systems that, in Olson’s estimation, drive a “check-list mentality” rather than encouraging IRS employees to exercise judgment and discretion.
Later in her report, Olson characterizes health care reform (i.e., the Patient Protection and Affordable Care Act, P.L. 111-148, and the Health Care and Education Reconciliation Act, P.L. 111-152) as likely the most extensive social benefit program the IRS has been asked to implement in recent history. Among the most significant provisions in which the IRS will participate, she cites the following:
- The Sec. 36B premium assistance credit;
- The Sec. 45R small business tax credit;
- The mandate under Sec. 5000A that individuals maintain minimum health insurance coverage; and
- The requirement under Sec. 4980H that large employers offer coverage to employees.
Moving beyond her generic call for acknowledgment and funding of the expanded mission, Olson commits herself to working with the IRS to deliver what she believes must be a “holistic, research based approach toward implementation.” She urges the IRS to develop a detailed understanding of the characteristics and needs of those it will be assisting in order to determine the best way to provide service and resolve issues as soon as possible. In assessing the magnitude of the health care implementation, Olson points out that virtually every component of the IRS will have some role in the implementation. Unlike its core mission, however, the IRS will find itself administering decisions made by other agencies, and many of the IRS’s health care “customers” will be unaccustomed to dealing with the IRS in a health care context.
Increased demands on the IRS have by no means been limited to the mission accretions related to social benefit programs. Even as those programs contend for more of its resources and attention, the IRS is significantly expanding many of its traditional programs. As an example, the newly restructured LMSB organizational design promises to bring new resources and resolve to a breadth of cross-border tax issues. (See News Notes, p. 664.) On another front, the IRS is expected to soon finalize its proposal to require most large corporations to report their uncertain tax positions (Announcement 2010-9). The rationale for the proposal was based largely on the premise that taxpayer disclosure could radically alter how the IRS currently identifies which entities and issues to audit. Unquestionably, it is a busy season for the IRS—and this does not account for any late-breaking substantive tax law changes of the sort that have occurred with daunting regularity in recent years.
John Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Michael Dolan is with KPMG LLP in Washington, DC, and is the immediate past chair of the AICPA’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at email@example.com.