National Taxpayer Advocate Report Details Challenges Facing IRS Due to Government Shutdown and New Federal Tax Laws

National Taxpayer Advocate Nina E. Olson recently released a report to Congress concerning the problems facing taxpayers with respect to their interactions with the Internal Revenue Service (IRS). For the 2018 filing season, she cites the government shutdown as the top concern: "The five weeks could not have come at a worse time for the IRS---facing its first filing season implementing a massive new tax law, with a completely restructured tax form." Severely outdated technology is the biggest roadblock to overcoming this challenge, which will require a major shift in federal funding strategy to fix.

Budget issues created other problems for the IRS during the 2018 reporting period, such as the limited period during which taxpayers can get answers to tax law questions. Beginning in 2014, the IRS policy has been to answer such questions only during the 3.5-month filing period, citing it as a cost-saving effort. In addition, when taxpayers attempt to contact IRS personnel for any type of question, generally through the toll-free phone line, they can have difficulty reaching the appropriate staff for efficient, effective help.

One major technology issue in 2018 was the 81-percent false positive rate produced by the IRS' fraud protection filters, which failed to recycle returns back through the correct database, meaning that IRS employees had to manually upload and process data and frozen returns for months after the filing deadline to complete the cycle. Fraud detection issues also froze refund returns claiming the Earned Income Tax Credit; as of December 21, 2018, the IRS still had not completed its audits of those returns.

Dwindling human resources has caused a noticeable reduction in the quality of services provided to taxpayers as well. The Taxpayer Advocate noted that the IRS is "actively discouraging" personal contact with taxpayers and obscuring direct contact information, instead guiding taxpayers to find DIY solutions through IRS.gov. This already has measurably negative effects: In FY 2018, about 40 percent of taxpayers who established their own streamlined Installment Agreements, which can be done online, had incomes below their Allowable Living Expenses, meaning they were choosing to use their income to pay tax debts rather than basic living necessities. The statistic for taxpayers whose debts ended up with a Private Collection Agency to help establish a streamlined Installment Agreement was similar.

The Taxpayer Advocate report details recommendations to Congress that could improve the taxpayer experience and the IRS' efficiency and effectiveness. To read the report in full, click here.

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