During budget negotiations in the coming weeks, Congress should ensure that the Internal Revenue Service (IRS) has sufficient funding to effectively enforce the tax laws and improve taxpayer assistance and education services. This would allow the federal government to actually receive more of the taxes it is owed.
Making certain the government receives the correct level of revenue would help in lowering deficits and putting the federal budget on a responsible path. This means reducing the “tax gap” -- the difference between total taxes owed by businesses and individuals and taxes paid on time.
According to the most recent analysis by the IRS, covering the years 2008-2010, the net U.S. tax gap is around $406 billion a year, while the gross tax gap is more than $450 million.
Taxpayer education and enforcement activities are integral to collecting tax revenues owed to the government and closing the tax gap. In National Taxpayer Advocate Nina Olson’s recent mid-year report to Congress, she concluded these “taxpayer services require more emphasis than they are currently receiving.” She attributes part of the problem to resource constraints, adding that “IRS funding has been reduced by nearly 20 percent since Fiscal Year 2010.”
With a decreasing budget, the agency has less ability to allocate resources to education and enforcement. As of last September, there were just 98 IRS employees for education and outreach to 62 million small businesses and self-employed taxpayers, and only 365 IRS employees dedicated to education and outreach to the nearly 125 million individual taxpayers.
Olson’s report found that the IRS answered only 40 percent of calls from taxpayers seeking to make payment arrangements in the 2017 filing season -- down from 76 percent the previous year.
Meanwhile, IRS telephone assistors answered 25 percent fewer calls on “account management” lines, compared to the 2016 filing season. Not only were fewer calls answered, but wait times on calls increased to 47 minutes in this year’s filing season 2017, up from 11 minutes last year.
While the 2017 filing season saw 79 percent of taxpayer calls answered, the report notes the IRS 2018 budget proposal predicts that figure will drop to 39 percent next year.
Closing the tax gap is not a sufficient strategy for fiscal sustainability. Policy changes must be made through hard choices on spending and taxes. But better education and enforcement activities can help the federal government receive the tax revenues it is owed, enabling it to lower future deficits. Congress should keep this in mind as it considers IRS funding for the coming fiscal year.