By: Richard Rubin
The recent government shutdown damaged the Internal Revenue Service, an agency already struggling with budget cuts and aging computer systems, according to the IRS’s in-house watchdog.
IRS employees are working through more than five million pieces of correspondence and tens of thousands of backlogged audit responses and amended returns, according to an annual report released Tuesday.
In the week after the shutdown ended, the wait time on the IRS accounts-management phone line was 17 minutes, up from four minutes last year. And only 48% reached a live person, down from 86% in the equivalent week last year. Wait times were even longer on other IRS hotlines.
“Make no mistake about it, these numbers translate into real harm to real taxpayers,” wrote Nina Olson, the national taxpayer advocate, in her report. Ms. Olson operates as an ombudsman within the IRS and oversees employees who assist the public in dealing with the tax agency.
The way the IRS operated during the shutdown also hurt vulnerable taxpayers, Ms. Olson wrote. Before and during the shutdown, the IRS continued sending notices that had “serious consequences” but made it difficult or impossible for taxpayers to get the information they needed to respond.
For example, taxpayers couldn’t get seizures of their property reversed even if they were facing severe economic hardship and banks may already have removed the money from their accounts. Ms. Olson’s employees often assist with that work, but they were largely furloughed and unable to do so.
In some cases, taxpayers’ Tax Court petitions were returned to sender during the shutdown, meaning that tax collection continued even in cases where the law would suspend it. Fixing that problem will cost money for the court and for the IRS, Ms. Olson wrote.
“It is unconscionable for the government to allow its employees to enforce collection of taxes without the concomitant taxpayer rights protections enacted by Congress,” she wrote, recommending that lawmakers change the rules for future shutdowns.
Low-income taxpayers, in particular, are at risk of getting discouraged when the government stops responding, which could lead to accumulating interest and penalties.
“No one’s there and so there’s a higher likelihood that they could disengage entirely,” said Jennifer Breen, a partner at Morgan, Lewis & Bockius LLP who represents low-income and corporate clients.
On the corporate side, the shutdown is having lingering effects as IRS employees pick up cases they set aside months ago while interest costs accrue and companies spend money on advisers. Ms. Breen said she spent time on calls with IRS employees on Tuesday preparing for how to handle cases if another shutdown happens.
“Any time you stop the train from moving, the act of starting it back up again takes so much more effort,” Ms. Breen said. “We’re still figuring out all of the delays and all of the impacts.”
Tony Reardon, the president of the National Treasury Employees Union, which represents IRS workers, said the public should be alarmed by the “damage that has been done to the agency’s workforce and the taxpayers they want to serve.”
“Today’s report brings into sharp relief just how difficult it is for an underfunded, understaffed agency to function at a high level when most of its workforce was locked out for a month before the start of the filing season,” Mr. Reardon said.
In a statement about Ms. Olson’s report, the IRS said it is committed to improving its technology, enforcement and service.
“The IRS successfully reopened operations following the shutdown, and the agency is seeing a good start to the 2019 filing season,” the statement said. “We are continuing to assess the impact of the shutdown on our various operations across the agency and remain proud of the many IRS employees who have risen to the resulting challenges.”
Ms. Olson’s calls for tax simplification, taxpayer rights and a customer-service approach at the IRS have at times translated into change. The IRS and Congress have adopted some of her suggestions, including requiring brokers to report on the cost basis of stocks and adjusting some filing deadlines.
The shutdown came as the IRS was implementing the first filing season under the 2017 tax law, which came with new forms, new rules and changes to withholding and deductions that are confusing some taxpayers.
The new Form 1040, which has a postcard-style front page and backup schedules, increases the potential for errors, Ms. Olson wrote.
Also, experts expect average refunds are likely to be larger this year, but fewer people are likely to get them, which presents its own challenge for the IRS. Keith Fogg, a clinical professor of law at Harvard Law School, said Tuesday that if 1% or 2% of taxpayers shift to owing money at filing time, that can create lots of extra work for the IRS as employees negotiate installment plans and respond to collections notices.
“Even people who owe only a small amount of money, if they don’t have that small amount of money, [they] are going to put a big burden on the system,” he said.
Those immediate issues come alongside a longer-term shift at the IRS from a model that offers taxpayers more assistance to one that relies more heavily on them to navigate the system, Mr. Fogg said.
“Every time they have to interact with the IRS in some way, we make it really hard for them now,” he said.