New IRS chief says budget crunch, understaffing taking its toll

Thursday - 2/6/2014, 3:47am EST

Jared Serbu reports.

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The new commissioner of the IRS told Congress Wednesday that his agency is understaffed and underfunded in every one of its mission areas, and its ability to collect revenue and engage in taxpayer assistance will continue to suffer until lawmakers provide more funds.

The IRS opened its systems to E-Filing of 2013 tax returns last week, one week later than usual. The tax agency delayed the filing season because of setbacks in preparations as a result of the 16-day government shutdown and last year's furloughs during sequestration.

While the decision to start the filing season later was a result of hopefully one- time events, IRS Commissioner John Koskinen said the agency he took over a little more than a month ago faces big-picture problems that directly are tied to declining annual budgets.

"To some extent you get what you pay for," he told the House Ways and Means Subcommittee on Oversight. "We get more than we probably deserve from these employees, given the stress they're under. But I think it's important to understand what we're not going to get, because we're not paying for it."

After last month's passage of a fiscal 2014 appropriations bill, the IRS' budget is $900 million (or 7 percent) smaller than it was in 2010.

At the same time, the population of taxpayers has grown by 4 percent, and the IRS workforce has been trimmed by 10,000 employees, including 3,100 enforcement personnel. Koskinen said there's a direct correlation between those cuts and the amount of tax revenue the IRS can collect.

Less working getting done

Last year, Treasury saw the amount it brought in through enforcement activities drop by $4.2 billion as compared to 2010, and collections resulting from audits were at their lowest level in 10 years. The IRS audited 5 percent fewer individual returns in 2013 than it did in 2012, and it saw a 13 percent drop in audits of business tax returns.

"The inspector general noted last fall that compliance revenues were down by $8 billion in response to the $1 billion in cuts, " he said. "It's clear that historically over the last 30 or 40 years that the more funds the IRS has available for enforcement, the more funds it collects. The money we collect just in our compliance activities is between four and five times the entire budget of the IRS. This year, we're going to do fewer audits, we're going to have fewer compliance activities. Somehow, that has never resonated. Taxpayer services have also suffered, not because our employees aren't working hard, but because there are fewer of them."

While getting an IRS representative on the phone quickly during the peak of tax filing may not be the easiest task even in the best of years, hold times and successfully-connected callers are some key metrics the agency watches to measure the effectiveness of taxpayer services. Those data points now are at troubling levels, Koskinen said.

"Last year, about 40 percent of taxpayers who called the IRS were unable to reach an IRS employee. That's unacceptable. But we don't see that number improving much, if at all this year, and we're worried there will often be extensive wait times for taxpayers trying to get through," he said. "Expanding our online offerings can only go so far to ameliorate this problem."

Koskinen insisted the IRS has been trimming costs wherever it can and redirecting funds to its core missions.

It has saved $60 million a year by halting the practice of mailing a printed tax booklet to every taxpayer, since most people never use them.

Apps to relieve some pressure

It also slashed its training and travel spending by more than 80 percent since 2010. But in that case, the commissioner thinks the cuts were probably excessive and need to be partially reversed.

"In both the public and private sectors, one of the first things that always seems to get cut is training, and in my view as a manager, that's the last thing that ought to get cut," he said. "Seventy-five percent of our budget is people, so we need to be efficient with those people, we need to train them appropriately so they can deal with the public appropriately, and we need to provide them the resources so that we can increase their effectiveness. We have to invest in our frontline workforce. They are the people who do the work, they can give you the most information about what needs to be done. I'm going to find the money somewhere. It's not going to be as much as we used to spend, but I think it's a critical investment for the agency to make."