Oversight Board Urges Congress to Give the IRS More Cash than the President Requested

According to a Bureau of National Affairs article (subscription) published today, the Internal Revenue Service's (IRS) Oversight Board publically released its recommendation on the FY 2011 budget this morning. Submitted to the House and Senate appropriations committees last month, the recommendation requests 2.2 percent more funding for the agency than President Obama proposed. The additional resources would go toward taxpayer services and operations support.

In his FY 2011 budget proposal, submitted to Congress in February, President Obama asked for $12.633 billion for the IRS, an increase of $487 million from last year. In their recently released recommendation, the IRS Oversight Board urges Congress to provide $12.914 billion for the upcoming fiscal year, $281 million above the president's request. Both budgets contain the same funding requests for IRS enforcement and the Business Systems Modernization (BSM) program, at $5.8 billion and $387 million respectively.

The Oversight Board, which Congress created through the IRS Restructuring and Reform Act of 1998 to provide a "cogent, focused direction" for the IRS by overseeing the execution of its duties, disagrees with the president on funding levels for taxpayer services and operations support. The board calls on Congress to supply an additional $52 million to the former and $229 million to the latter.

No, not that kind of Cash...

In the taxpayer services category, the IRS Oversight Board argues that the administration's goal of a 75 percent level of service (LOS) for the IRS's toll-free telephone system – which millions of Americans use every year to help answer difficult tax questions – is inadequate. Although they appreciate the administration's request for a $21 million increase in funds to raise LOS above the current level of 71 percent, the board claims that the IRS needs an additional $30 million to help raise the LOS to 80 percent. National Taxpayer Advocate Nina Olson recently urged Congress to help fund the same goal.

The LOS for the IRS phone system has decreased steadily over the past two years because of an upsurge in demand, which has been spurred by the increased complexity of the tax code due to the stimulus. But if you think it's been bad over the last two years, expect taxpayers to place even more stress on the system in the future as questions arise over tax provisions related to the recent health care overhaul. Without increased funding, Congress should expect nothing but a steady decline in the telephone system's LOS in the future. And with lower LOS come lower compliance rates, as many folks will simply give up on their taxes if they can't get an answer to their question.

In addition to calling for more funds beyond the administration's increase for the phone system, the board strongly disagrees with the way the president's budget pays for the $21 million bump. The president calls for Congress to cut $9 million from several low-income taxpayer services. While taxpayers in general require a better toll-free phone system, it hardly seems like a good idea to achieve that goal at the expense of successful initiatives that help low-income taxpayers – a segment of the population that is already underserved.

In fact, the Oversight Board thinks that funds for low-income taxpayer services are already too low, and calls on Congress to provide an additional $22 million for initiatives like the Taxpayer Advocate Service, the Low Income Tax Clinic grants program, the Tax Counseling for the Elderly program, and the Volunteer Income Tax Assistance grants program.

The additional $229 million to operations support is also important, as it would help the IRS with its flagging IT operations, but the funds for taxpayer services are the key issue. As the IRS has attempted to remake itself over the last decade or so, the whole idea has been to encourage voluntary compliance. It costs a lot more money for agents to track down non-compliant taxpayers. One of the easiest ways to increase voluntary compliance, and therefore the efficiency of the IRS, is to fund taxpayer services adequately.

Image by Flickr user Sounds Film Festival used under a Creative Commons license.

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