When clients come to Bill Nemeth, they have one wish: Please make it go away. "It," in this case, is a problem with the Internal Revenue Service.
Nemeth makes his living representing people before the IRS: He's an enrolled agent, the highest credential the IRS awards. He helps makes nasty tax things — fines, penalties, liens — go away. He's on the phone with the IRS every day. But these days, he's mostly on hold. "I was on hold for an hour and a half last night," he says.
And Nemeth gets to use the practitioner priority line, which puts him ahead of regular taxpayers who just want to know what form they have to file for reporting a capital gain from a stock loss. (That would be Schedule D.) Nemeth says his wait time used to be 15 minutes or so. Now it's often more than an hour.
For the average taxpayer, the waits are long and often futile: 39% of those who called the IRS last year simply hung up before their call was answered, according to a scathing recent report by the IRS Taxpayer Advocate, whose job is to take the taxpayer's side at the IRS. (The IRS typically responds to the report at midyear.) And it's only going to get worse. "Given our very limited resources, phone lines will be very busy, and there will frequently be extensive wait times," IRS Commissioner John Koskinen said on the agency's official YouTube video about the 2013 tax year.
And as much as people love to hate the IRS, the agency's problems become taxpayer's problems. Poor customer service means that many more people will pay someone else to do their taxes, which simply becomes another cost of dealing with the federal government. And for some people, the IRS's woes mean that basic mistakes in filing could ultimately become big costs that involve fines, penalties, liens — and hiring people like Bill Nemeth.
IRS customer service has been struggling for the past three years, and the cause is fairly simple: Congress has consistently cut its budget. "Congress doesn't like the IRS," Nemeth says, and Congress is unlikely to get much blowback when it cuts the not exactly beloved agency's budget. While the president requested $340 million in funding for the IRS because of the Affordable Care Act, none of that was funded by Congress. But the IRS has to do what the law requires it to do, Koskinen says. "If other things don't get done, that's what we'll do."
Even without the ACA funding, the cuts have been severe. In the government's budget year 2012, the IRS allotted $172 million to training its customer service representatives, according to the IRS Taxpayer Advocate. The IRS now has $22 million to train those same people — an 87% drop.
At the same time, the IRS lost 8,000 employees between 2010 and 2012, says Edward Jenkins, tax director at CBIZ MHM, an accounting firm in Plymouth Meeting in suburban Philadelphia, Some of that is because of the aging of the IRS workforce, Jenkins says . In the government's fiscal year 2017, 70% of IRS executives and half of non-executives will be ready to retire, he says.
And tight budgets mean that it's hard to keep good employees, particularly when they can work for better pay at CPA firms elsewhere. "You're seeing very few pay raises, which makes it not exactly a great place to work," Jenkins says.
Fewer workers and less training mean the IRS is less able to help taxpayers, particularly the elderly and disabled. Ten years ago, according to the IRS, the agency prepared 476,000 tax returns for those taxpayers. It will do none in the 2013 tax filing season, the Advocate's report says. And, says IRS Commissioner Koskinen, "Our employees would be delighted to provide better services. We have town hall meetings where they can ask anything. The common theme is that there are not enough people to get the work done."
Taxpayers looking for answers on tax law will have to look elsewhere, the IRS says. It will only answer basic tax questions this year, and that's assuming taxpayers can get through. Last year, the IRS could only answer questions from 61% of callers, down from 87% ten years earlier. And don't be surprised if you hear recorded messages suggesting you find your answers elsewhere. "You can expect more and more gentle shoves to the IRS Web page," Jenkins says.
Automation is a good solution for many taxpayers, Koskinen says. Instead of calling the IRS to find out when their refund is coming, they can now find out online. And this year, you can get your previous filings from the IRS online. "The online system is better than it used to be," Koskinen says. "But you're still going to end up with 15 to 20 million calls unanswered this year."
For some of those callers, the lack of IRS help means getting deeper into trouble. IRS problems typically begin with a letter from the agency, one that is often ominous and difficult to understand. "The letters are not written for civilians," Nemeth says. Taxpayers who can't get the IRS to explain the agency have to call for help from people like Nemeth. "We explain to taxpayers what the IRS is saying, and how angry the IRS is."
Making matters more difficult: The IRS is behind in dealing with responses to its own letters as well. "The IRS sends you a notice about an issue on your tax return, you respond, and they send a letter saying they will respond in 45 days," says Jeffrey Porter, chairman of the American Institute of Certified Public Accountants' tax executive committee.
All well and good. But at the same time, the IRS computers are spitting out letters threatening to place levies on your accounts, which you also have to respond to. "It gets to be this mad cycle that gets very challenging," Porter says. And for preparers like Porter, time on hold really isn't billable — it's just a waste of time.
What's more, the U.S. tax code gets more complicated each year. "More complexity, less service, less help — it seems like a prescription for disaster," Porter says. So far this year, the IRS has delayed putting out forms for residential energy credits, passive activity loss limitations, qualified adoption expenses and others — all of which means delayed refunds for taxpayers.
To make matters worse, the IRS uses 22 different information systems that don't talk to each other, Jenkins says. Congress has not given the IRS the money it needs to update and modernize its systems, some of which still use the now-antique DOS system.
Making the tax process more onerous isn't good for anyone, except those who get paid to do other peoples' taxes. And it's particularly bad for taxpayers. Currently, the IRS collects $255 for every $1 it receives in its budget. "If the chief executive officer of a Fortune 500 company were told that each dollar allocated to his company's Accounts Receivable Department would generate multiple dollars in return," the Taxpayer Advocate's report says, "it is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed. Yet that is essentially what has been happening with respect to IRS funding for years."
Its voluntary compliance rate is about 83%, meaning that about 17% of tax revenue that should have been collected wasn't. In 2006, that was $450 billion — enough to build 10 Nimitz-class aircraft carriers.
Some of that $450 billion is, of course, willful tax evasion. (Nearly 5,000 of the jobs lost from the IRS have been in front-line tax enforcement, according to the inspector general of tax administration, J. Russell George.) But another part is simply unintentional errors by taxpayers — mistakes that could be offset by better IRS customer service. "If the IRS can help taxpayers correctly comply with law, it will have a direct impact on the revenue it collects," Porter says.
But don't hold your breath. As tax season hits its stride, the IRS is already warning taxpayers not to call. "The IRS reminds taxpayers the Presidents Day holiday period typically marks one of the busiest weeks of the tax filing season for its phone lines," the statement said. Their advice: Go to the website, instead.