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January 30, 2015
Worst Filing Season in 30 Years? Probably Not
by Christopher Bergin

Full Text Published by Tax Analysts®

This Viewpoint first appeared in the January 26, 2015 edition of Tax Notes.

On January 15, just days before tax return filing season officially started, IRS Commissioner John Koskinen denied to reporters that his agency is pursuing a strategy of discontinuing taxpayer service to protest recent budget cuts. Of course, taking the commissioner at his word, he still hasn't exactly been encouraging about how well the IRS will do its job this year, and he has complained vociferously about the lack of funding the agency is receiving from Congress.

At that same meeting with reporters, Koskinen said, "We are working very hard not to have [an IRS] shutdown." (Has it come to that?) He added, "I've been around town long enough, and I know enough about this agency," to know what highly visible cuts would undermine the IRS. (Prior coverage: Tax Notes, Jan. 19, 2015, p. 339.)

Well, Koskinen has also been around Washington long enough to know (as the old TV commercial went) that when the IRS commissioner talks, people listen.

Just a few days before these statements, the commissioner sent an e-mail to IRS employees that was clearly meant for public consumption. He warned about the effect of budget cuts on the IRS, accurately noting that "Congress approved a $10.9 billion budget for us, which means we must absorb a cut of $346 million during the remaining nine months of the fiscal year. But that really amounts to a total reduction of about $600 million when you count another $250 million in mandated costs and inflation. This is the lowest level of funding since 2008, and the lowest since 1998 when inflation is considered." Koskinen pointed out that the total reduction in full-time employees at the IRS between fiscal 2010 and fiscal 2015 is expected to be more than 15,000.

In his early January memo to employees, the commissioner outlined some of the parade of horrors that could be coming this year: delays to critical technology investments; enforcement cuts; cuts in overtime and temporary staff hours; and the possibility of shutting the IRS down for two days.

And Koskinen touched the third rail of U.S. tax administration: "Delays in refunds for some taxpayers" (emphasis added). In poker, they call that upping the stakes. In New Jersey we call it playing chicken. Call it what you want, but considering that many U.S. taxpayers inexplicably use tax withholding as a savings account, telling them that they may have to wait for their money is dangerous.

The reaction from the general media has been predictable. In the January 15 Washington Post (http://www.washingtonpost.com/business/2015/01/15/79d9ec8e-9d03-11e4-bcfb-059ec7a93ddc_story.html), personal finance adviser Michelle Singletary began her column with "This is shaping up as an ugly tax season." A January 5 column by Jeanne Sahadi in CNNMoney (http://money.cnn.com/2015/01/05/pf/taxes/tax-filing-irs/) is headlined "'Miserable' tax season could be the worst in years."

Doing Less With Less

Koskinen issued similar predictions in an open letter in December. In fact, for months his mantra has consistently been: "This year we are looking at a situation where realistically we have no choice but to do less with less." Less always seems to mean that at the very least, enforcement will be down and that almost half the taxpayers who call the IRS will get no answer -- in other words, no help.

Let's hold the phone here. Those are the fundamental things a tax administrator needs to do in a self-assessment personal income tax system like ours. I have been outspoken in arguing that the IRS is badly underfunded. But let's face reality -- its annual budget is more than $10 billion. A detailed explanation on how it is prioritizing that money is not an outrageous request on our part. In fact, the national taxpayer advocate called for that explanation in her annual report to Congress.

The Gold Standard

Introducing a survey released by the IRS Oversight Board on December 8, board Chair Paul Cherecwich reported that "taxpayer satisfaction with IRS customer service has fallen to its lowest level in more than a decade." The survey, however, says that almost 90 percent of taxpayers find it unacceptable to cheat on their taxes, while only one-quarter are unsatisfied with the service they get from the IRS. That means the overwhelming majority of taxpayers try to get it right. In a self-assessment system, that is remarkable. Why then would the agency's first cuts for this filing season appear to be aimed directly at taxpayer service? Why would we further tarnish what used to be the gold standard for tax systems around the world?

Certainly, Koskinen has been around Washington long enough to know that when he starts talking about cutting taxpayer services, others are going to talk about him protesting budget cuts.

Enough Blame to Go Around

The IRS's cooperation last year with Congress regarding accusations of abuse of conservative organizations applying for tax-exempt status was less than stellar. Granted, the problem began before Koskinen became commissioner, but his public testimony on the issue to Congress has bordered on arrogance: "We gave you all the e-mails we had; oh, we found some more e-mails; hey, get off my back because I'm doing the best I can." This is not a good way to make friends in Washington.

Granted, lawmakers charged with overseeing the IRS budget haven't behaved much better. Congressional Republicans have showed increasing disrespect for the collector of national revenue since the early 1990s -- so much so that it would make a commissioner's job talking to lawmakers challenging at best.

Y2K?

In all of this I agree with the national taxpayer advocate: Congress can both support the IRS and hold it accountable. In other words, lawmakers must do their job. And the IRS can both assist Congress in holding itself accountable and remember that it serves the taxpayers.

To quote from the national taxpayer advocate's report to Congress:


    The IRS will never be a beloved federal agency, because it is the face of the government's power to tax and collect. But it should be a respected government agency. . . . We need to recognize that the IRS and its employees play a vital role in the economic welfare of this country. And we need to find a way to support the agency even as we hold it accountable for what is often a thankless task.

Agreed. But, again, IRS leadership needs to do its job as well. And it can start this year by ceasing the low-expectation public relations campaign and work on producing the best filing season possible with what resources it has.

The horrible nightmare of a filing season meltdown came in 1985. Will 2015 be a repeat? I don't think so. All this talk about the current filing season is starting to sound like Y2K all over again. Remember that "disaster"?

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