The IRS’s anticipated fiscal year (“FY”) 2015 budget took center stage at the IRS Oversight Board’s last meeting of 2014. Senior IRS officials remain concerned about potential funding reductions in FY 2015 but are committed to implementing unfunded mandates, such as the Patient Protection and Affordable Care Act (PPACA), the Foreign Account Tax Compliance Act (FATCA) and a pay raise. All told, the IRS will likely have to absorb approximately $345 million in additional costs, causing serious implications for customer service, enforcement, refund fraud, and information technology infrastructure.
The Oversight Board expressed its concerns over the potential cuts to the IRS’s budget and the impact to critical services the agency provides. Moreover, a flat budget in FY 2015 would be almost $700 million less than required to meet even post-sequestration capacity. Since FY 2013, the number of individual and business taxpayers has increased by 4.2 million, while the costs of current operations have grown by 3.1 percent.
“The IRS’ budget and taxpayer needs are moving in opposite directions,” observed Oversight Board Chairman Paul Cherecwich, Jr. “This trend is not sustainable in either the short- or long-term and the effects can be seen both in declines in customer service and enforcement, and also lost opportunities.”
With an additional 951 full time equivalent employees, the IRS could have increased service on its toll-free lines to 75 percent, while serving an additional 4.4-million taxpayers and cutting wait times by 36 percent. Additionally, more resources in the FY 2014 budget could have generated billions of dollars in additional revenue to help reduce the government-wide budget deficit.
With a shrinking budget and workforce, self-service online applications take on even greater importance. The cost per digital interaction is only 17 cents as compared to $33 dollars for each assisted call on the IRS toll free lines. One of the more innovative ideas to improve customer service is to make self-service the least burdensome, easiest option for most services via an IRS Online Account.
The Board was briefed on the 2015 filing season, which presents a number of challenges, including uncertainty regarding tax extender legislation and an anticipated higher volume of calls related to the PPACA. The IRS has projected that only half of taxpayers calling the IRS will get through to a customer service representative during the filing season. To help mitigate these problems and address taxpayer confusion, the IRS is conducting an aggressive PPACA outreach and education campaign through multiple communication channels and will offer an informative, plain-language web page on http://www.IRS.gov.
Due to budget cuts, IRS training has taken a huge hit, although the IRS told the Board that it anticipates years of steady declines are beginning to level off. The IRS is also relying increasingly on virtual training, which the Board believes is cost effective, but cannot fully take the place of in-person training, especially for new employees.
The Board was briefed that refund fraud continues to be a problem for the Earned Income Tax Credit (EITC) program. However, traditional enforcement programs protected over $3.4 billion from being issued in FY 2014 and the IRS plans to continue its multiyear “test and learn” approach for EITC preparers. The IRS’ Enterprise Risk Management program is also in full swing with training for managers and communications to all employees slated for FY 2015.
Oversight Board Chairman Retires After 8 Years of Service
Cherecwich is retiring after eight years of service. He said, “It has been an honor and privilege to have served as Chairman of the Oversight Board these past seven years. I believe that we provided the long-term strategic vision and direction for the IRS as intended by the IRS Restructuring and Reform Act of 1998 (105-206), and our tax system is the better for it. However, the Board cannot continue to do its job with so many vacancies. I urge the President to nominate more Board members and for the Senate to act expeditiously on them. “