January 14, 2015; New York Times
A recent report by the IRS’s National Taxpayer Advocate is filled with bad news for taxpayers. The coming tax season is the first where filers will have to deal with the Affordable Care Act (also known as Obamacare) insurance subsidies on the one hand and penalties for not having insurance on the other. In the midst of this new complexity affecting millions of tax returns, the IRS is operating with its smallest budget since 2008 and, adjusted for inflation, its smallest budget since 1998.
NPQ reported in December that IRS Commissioner John Koskinen was predicting trouble as a result of a $350 million current shortfall as well as a $250 million deficit from the previous fiscal year’s IRS budget. At that time, Koskinen was indicating that the bulk of the funding shortfall would be covered through shutdowns of IRS operations, along with a hiring freeze and suspension of overtime for IRS employees. The advocate’s report changes the focus and envisions an austerity strategy that minimizes the effect on employees and, instead, reduces services to taxpayers.
When using the IRS’s help line, callers should expect 30-minute wait times and be ready for the potential of a “courtesy disconnect” (the IRS will hang upon you) if wait times are too long. Only 40 percent of calls are expected to be completed successfully. In fiscal year 2013, 61 percent of calls were answered by the IRS and caller wait times averaged 18 minutes.
Americans for Tax Reform (ATR), an anti-tax 501(c)(4) founded by Grover Norquist in the 1980s, notes that the elderly and disabled are particularly affected by the IRS’s emerging taxpayer service strategies. Previously, elderly and disabled taxpayers could telephone their local IRS office to set up an appointment to get information and assistance. For the coming tax season, the IRS will only be accepting such requests by e-mail.
Why is the IRS budget being cut when its responsibilities are increasing? Not surprisingly, politics plays a larger part and there’s lots of blame to go around. Congressional Republicans are upset about the Affordable Care Act and are seeking to make it as difficult as possible to implement while simultaneously citing the high costs of the ACA’s implementation. In addition, they are incensed about the IRS’s slow response and reluctant cooperation with the investigations into the targeting of conservative-sounding organizations by the Exempt Organizations (EO) Division, formerly headed by Lois Lerner. The bad feelings were intensified by IRS Commissioner Koskinen. In his appearances before investigating committees during 2014, Koskinen didn’t hide his disdain and contempt for the investigations, angering influential Congressional Republicans. Feeling ignored and disrespected by an agency under suspicion and investigation, restricting funds is one way Congress can get the attention of the IRS and the Obama administration.
ATR refers to the IRS’s plans as a “Washington Monument” strategy, implementing budget austerity in intentionally wide-ranging and visible ways, akin to past government shutdowns when national monuments and other tourist attractions were closed as a first step. Others point to already-reduced staffing at the IRS and reduced enforcement activities. It is estimated that each dollar spent on enforcement results in a gain of six dollars to the U.S. Treasury, so reduced enforcement costs far more in missed revenue than it saves in overhead.
There are at least two implications for nonprofits. First, can nonprofits step in to help taxpayers when the IRS can’t? Those most likely to need help are the elderly, disabled, and others benefitting from purchasing health insurance, with the aid of subsidies, through the state and federal exchanges. Second, if the IRS delays refunds for taxpayers filing paper returns, as the report indicates they will, how will this affect demand for services from agencies serving people in need? Food banks, housing programs, and other “safety net” service providers may encounter a spike in demand this spring.—Michael Wyland