Paul L. Caron

Wednesday, February 19, 2014

The IRS Is at a Tipping Point: Under Attack, Distrusted, and Underfunded

IRS Logo 2Boston Globe, IRS is America’s Feared and Failing Agency: As Demands Set to Rise, Flaws Evident:

Week after week, Republicans on Capitol Hill have ratcheted up their drumbeat of discontent with the Internal Revenue Service, alleging that it targeted conservative groups and can’t be trusted. Six investigations are underway, ensuring the matter will drag on for months or years.

But there is a bigger question about America’s least-loved federal agency that barely gets asked: Is the IRS, which collects 90 percent of the nation’s revenue, up to the basics of its job? The surprising answer is that it often is not.

A Globe review of dozens of government reports and audits, as well as interviews with key officials, found a series of fundamental problems:

  • The IRS makes billions of dollars in potentially fraudulent payments because it lacks the ability to check whether many returns are accurate before refunds are mailed.
  • The IRS relies on tax preparers to file accurate returns on behalf of taxpayers. But many preparers are not required to receive training and can be declared a tax professional by paying a $64.25 fee to the IRS. A federal court on Tuesday rejected the agency’s effort to license such preparers.
  • The IRS is increasingly impenetrable to taxpayers with questions and complaints. The agency is so short-staffed it cannot answer nearly 40 percent of phone calls, and it has failed to meet its own 45-day deadline to respond to millions of letters per year from taxpayers. The same dismal rate is likely to be repeated this year, according to the agency.
  • The decision by Congress to cut the agency’s budget over the past four years by more than $1 billion, designed to save money, has had the reverse effect. The loss of about 10,000 employees, more than 9 percent of the workforce, has shrunk collections by $8 billion. In other words, the budget cut increased the deficit.

Globe 2

All of this helps explain why, in a strikingly harsh but little-noticed assessment of the IRS’s own office of the national taxpayer advocate, the agency was declared last June to be “an institution in crisis.” That was followed by the office’s January report to Congress that upped the sense of urgency, warning that unless changes are made soon, the IRS will “fail at its mission.”

Yet that mission is about to become even more complicated. Starting in the next tax year, the agency will be responsible for implementing key parts of the new health care law, requiring the biggest changes to the tax code in decades. ...

The story of the IRS today is one of a powerful entity at a tipping point — under attack, distrusted, and underfunded, yet crucial to the nation’s survival and prosperity.

IRS News, Tax | Permalink


A good first start at reform would be to eliminate tax withholding. I.e. no withholding at all, not even voluntary. Either pay your estimated taxes throughout the year or settle up early the following year. That way, everyone sees their money before it goes to Uncle $am and has to personally say good bye to it. I can already hear the weeping and wailing and gnashing of teeth.

Posted by: Mike | Feb 21, 2014 4:41:53 PM

Flat tax or and simplification of the tax code would cut down on the money and power politicians could sell. For that reason alone it will never happen.

Posted by: James | Feb 20, 2014 10:38:32 AM

Bobby B makes three good points, but . . . .

1. The complexity of the nation’s tax returns is due almost entirely to the complexity of the Internal Revenue Code. To be sure, some of the IRS forms would not survive artistic criticism, but it is not their function to be pretty. Simplify the code and simpler forms would follow. As for tax return prepares, the great majority are honest and competent. But as with most things, a small minority of unscrupulous and/or incompetent preparers causes out-of-proportion disruption of the system, ranging from mere inefficiencies to outright fraud.

2. I strongly agree that the IRS should not combine taxpayer service and guidance with enforcement and collections. Congress long ago separated out the Chief Counsel from the Commissioner’s “side.” In 1998, Congress removed the Inspection Division from the Commissioner’s domain and established TIGTA as a separate agency. Splitting the IRS into two separate agencies–one for taxpayer service/guidance and another for enforcement/collections–is long overdue.

3. As for regulation of tax return preparers, see #2 above. Tax practice before the IRS is now regulated by the OPR established in 1998. The OPR should be removed from the IRS’s jurisdiction and placed under a revenue enforcement agency.

As for the commenters suggesting dismantling the IRS, go right ahead. But revenue must be collected by some agency of the government, and the idea that converting to a flat tax or consumption tax would negate the necessity for a revenue collection agency is a pipe dream. All states with sales taxes have substantial revenue agencies. Moreover, all states with any kind of an income tax–including those with flat taxes–rely in substantial part upon information exchanges with the IRS. Almost all, if not all, of the states would have to substantially increase their revenue administration, collection, and enforcement agencies if they were not able to obtain regular assistance from the IRS. In short, the right-wing meme that the federal income tax could be abolished and replaced by some kind of sales tax collected for Uncle Sam by the states is something considerably more than ridiculous.

Posted by: Publius Novus | Feb 20, 2014 9:09:24 AM

The Globe spends a good bit of time telling us how common-sense it would be to have the IRS approve or disapprove of tax preparers.

"They could be doing a better job" is the essence of their argument.

I would suggest three other arguments:

1.) Our tax returns are supposed to be do-able by taxpayers themselves, without need for professional help. Still, due to education issues, many of the lower economic quartile can not or will not attempt them. The tax preparers most likely to be snared by the proposed certification requirements primarily serve this population, for relatively low fees. The costs of the new certification process aren't supportable by those low fees, which means that many people who need tax help will go without. These tax preparers probably couldn't help 3M prepare its corporate returns, or handle a complex tax-shielded estate, but they prepare simple and generally correct returns for people who would only do worse if they had no such preparers to hire.

2.) The IRS stands as a public prosecutor in many respects. Taxpayers see the IRS as an adverse party, because it IS adverse to them. In the realm of criminal law, we'd look askance if our local, state, or federal prosecutors claimed the power to regulate criminal defense lawyers. One could picture a time when many excellent and effective criminal defense lawyers might suddenly "fail" some certification test and be removed from the bar. "Oh, they'd never do that!", right? Then why even give them the choice of doing it?

3.) On the very best of days, when the IRS is run as an honest and honorable nonpartisan agency working for the good of the entire country, a common-sense principle holds that an agency should not regulate the people representing clients who are in conflict with that agency. This is not the best of days. The IRS has been shown to be an agency running amok, working not for our federal government but for the Democrat party even as they and Obama and others work to place larger and more critical aspects of our lives under its thumb. This is a time that calls for the agency to be down-sized, for its employees to be culled rather ruthlessly, and for its powers to be reduced. We do not trust them. We do not trust the IRS as a government agency, and we do not trust the IRS employees individually. The IRS, designed to work through the voluntary compliance of our citizens, has endangered that voluntary compliance by misusing its powers arbitrarily and for the benefit of its favored political party, and I have doubts that tax compliance will remain as good as it has historically been. They're no longer on our side, and so we're certainly not going to be on their side.

Posted by: bobby b | Feb 20, 2014 8:26:18 AM

The IRS is nothing less than the Regime's enforcement mechanism. The next refinement of the Dictatorship is the "monitors: assigned by the FCC into media newsrooms to prioritize and direct news coverage before it is disseminated to the proles. Monitors?, isn't that another term for "Propaganda Kommissars"?

Posted by: Crackermike | Feb 20, 2014 8:08:14 AM

"Congress could ease their burden by simplifying the tax code.
But I suppose that is just too obvious and not bureaucratic enough."

As Professor Reynolds says, that provides insufficient opportunities for graft.

Posted by: Davem123 | Feb 20, 2014 6:54:45 AM

Just you watch. Crippled IRS will be excuse for establishing a national sales tax. Then we'll have both.

Posted by: Ralph | Feb 20, 2014 6:29:06 AM

Ditto Momo.

Also it says something about the left when the IRS is "crucial to the nation’s survival and prosperity."

Posted by: Cannon Asesrb | Feb 20, 2014 6:27:49 AM

Sorry -- there is no government agency that is underfunded

They are not short staffed. (There seems to be plenty of resources for the agencies ongoing attacks of people who do not worship the current occupant of 1600)

The staffers are also not held responsible for incorrect (= illegal) answers given to the few of us who still pay taxes.

Posted by: Mark E | Feb 20, 2014 6:11:27 AM

"Power under control" is the ideal, usually male, paradigm to effectiveness--think golf swing, driving, shooting, dancing, ice skating. "Power out-of-control" is a sure-fire recipe for disaster, as exemplified by the current IRS and, more generally, the Obama administration in general.

Posted by: leishman | Feb 20, 2014 6:10:46 AM

I'm not defending the ACA as I detest it, but there are so many taxes in the Act,, who else would be empowered to collect?

Posted by: laddy | Feb 20, 2014 6:06:01 AM

Congress could ease their burden by simplifying the tax code.

But I suppose that is just too obvious and not bureaucratic enough.

Posted by: ThomasD | Feb 20, 2014 5:55:54 AM

'...unless changes are made soon, the IRS will “fail at its mission.”'

First bit of good news I've heard out of Washington in quite a long time.

Posted by: steve | Feb 20, 2014 5:49:31 AM

It is not a lack of resources. A $1B cut in funding did not cause an $8B reduction of revenue collecting. The priorities are out of whack. They certainly had enough money to harass 501C's, attend conferences, and make stupid videos. The biggest problem is poor leadership and management.

Posted by: Sean | Feb 20, 2014 4:59:37 AM

Seems like a good time to dismantle the IRS almost completely, in favor of a simple consumption tax that would require a mere fraction of the resources to administer...

Posted by: Robert | Feb 20, 2014 4:57:30 AM

"Training"? Is this where they were putting on bad Star Trek imitations?

Posted by: Mike Giles | Feb 20, 2014 4:45:06 AM

I think we'd find the IRS would work much better if we greatly simplified the tax code. Create a simple flat tax and watch how much easier everything would be to manage. We could probably even rescue a large number of IRS workers from "wage slavery".

Posted by: Simplify the code | Feb 20, 2014 4:42:20 AM

Remember when Jerry Brown ran for president in 1980? His signature initiative was a flat tax. No deductions. Tax return is a post card. Time to elmiinate the IRS by implementing the flat tax.

Posted by: Pablo Panadero | Feb 20, 2014 4:26:42 AM

> Starting in the next tax year, the agency will be responsible for implementing key parts of the new health care law

This says a lot about the psyche of The Left that something as unrelated as healthcare should be managed by the taxing authority.

Posted by: momo | Feb 19, 2014 2:09:38 PM