IRS funding cuts could damage government's reputation

from Fierce Government;

IRS funding cuts could damage government's reputation

By David Perera

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Funding shortfalls at the Internal Revenue Service could lead to a decrease in public confidence in the federal government, warns a Jan. 11 report from National Taxpayer Advocate Nina Olson. The agency's budget went down by 2.5 percent in the current fiscal year relative to the last. Olson, in an annual report to Congress, notes that the IRS is the one federal agency most Americans interact with every year, meaning that to a significant extent, their perception about the federal government "is shaped by their experience in dealing with the IRS." However, a combination of increased workload and decreased funding from Congress has combined to hurt customer service operations at the tax agency, the report says. "If taxpayers experience unnecessary hassles in trying to do their civic duty, their cynicism about the competence and fairness of the government will increase," Olson says. Greater workload plus fewer resources also damages tax agency efforts to catch tax scofflaws, Olson says. The most recent IRS estimate of the tax gap, based on figures from 2001, posits that at least $290 billion goes uncollected annually. As evidence of decreased customer service, Olson cites internal IRS studies showing that during the last fiscal year, only 70 percent of individuals seeking to speak with a telephone assistor were able to do, while during fiscal 2004, the percentage was 87 percent. During that same time, the backlog of correspondence in the tax adjustments inventory jumped by 150 percent, to 920,768 letters, the report also says. IRS workload has increased due to a number of factors, including an increasing number of fraudulent returns claiming refunds and what Olson characterizes as "a surge" in tax-related identity theft. In addition, Congress frequently approves changes to the tax code near the end of the calendar year, leaving the IRS scrambling to update its information technology systems.     Congress, Olson says, should exempt the IRS from discretionary spending budget freezes or deficit-reduction cuts and, over the long-term, even remove the tax agency from the annual appropriations process. For every $1 in appropriations to the tax agency, Olson notes, the IRS collects $200. "Policymakers may disagree fervently about the appropriate level of taxation, but there is little disagreement that the IRS should enforce the law fairly and consistently," she says.