Taxpayer Advocate Warns of ‘Pay to Play’ I.R.S. System

January 6, 2016

Under pressure from Congress to do more with less, the Internal Revenue Service is planning to increase its reliance on technology and tax preparers. But this push threatens to create a “pay to play” system where the only taxpayers who will receive personalized service are those who can afford to pay for it, the agency’s taxpayer advocate warned.

The taxpayer advocate issued the warning as part of her annual report released on Wednesday.

The I.R.S. has spent the last 18 months developing a long-term strategy that includes the creation of a system of online taxpayer accounts, and an expanded role for outside tax preparers and software companies. While the overarching goal is worthy, the taxpayer advocate said, it is troubling that the agency intends “to substantially reduce telephone and face-to-face interaction with taxpayers.”

For those with resources, “concierge-level service” will be available, the report said, while “the compliant or trying-to-comply taxpayers will be left either struggling for themselves or paying for assistance they formerly received for free from the I.R.S.”

Nina E. Olson, who leads the Taxpayer Advocate Service, an independent office within the I.R.S., said poorer Americans often were already the targets of scams by unscrupulous tax preparers.

“Why would we want to give these preparers even more access to taxpayer information?” Ms. Olson asked in the report. “And yet, if we don’t provide these preparers access to taxpayer accounts, it is very likely the tens of millions of taxpayers who use these preparers won’t be able to or won’t want to utilize their own online accounts, thereby carving a big hole in the I.R.S.’s online strategy.”

Millions of Americans do not have access to the Internet, and many who do have told researchers they do not want to handle complex financial transactions online.

The result of depending on third-party preparers — whether human or computerized — to help those who cannot navigate the online system on their own, she added, “will increase compliance costs for millions of taxpayers.”

Ms. Olson chastised the agency for not releasing crucial details of its plans.

She said her office had been left with the impression that the I.R.S.’s ultimate goal was “to get out of the business of talking with taxpayers” altogether.

In a statement, the I.R.S. responded by saying that the report did not fully capture the agency’s strategic plan.

“The I.R.S. remains fully committed to personal service to taxpayers,” the agency said, “and the I.R.S. believes increasing the availability of self-service interaction frees up in-person resources for taxpayers who truly need them, including those who are not comfortable online or don’t have personal access to a computer.”

The erosion of taxpayer service to the 150 million people and 11 million businesses that file has long been a concern of the advocate. But in a more positive development, Ms. Olson noted that last month’s budget agreement between Congress and President Obama to give the I.R.S. an additional $290 million to assist taxpayers should at least make it easier for the tens of millions of callers to get through on the phone this filing season.

That funding increase is the first in a long time. Since the 2010 fiscal year, the agency’s budget has been cut by nearly a fifth, after taking inflation into account, and its ranks reduced by thousands of employees. Such cuts harm taxpayers first and foremost, Ms. Olson said, and further open the door to unregulated and untrained preparers preying on vulnerable taxpayers.

That isn’t the way many critics see it, however. The I.R.S. itself has become an issue in the presidential campaign. Some Republican candidates have pledged to abolish the agency, which collected over $2.8 trillion in the last fiscal year, more than 90 percent of all federal revenue. Conservative critics like Senator Ted Cruz of Texas have condemned the agency for hounding small preparers out of business.

Sometimes the agency’s attempts to correct problems have ended up generating new ones, Ms. Olson said. The effort to streamline the application process for tax-exempt status has nearly eliminated any checks so that organizations that don’t qualify are getting approved, the report said. And increased antifraud screening has resulted in delaying refunds for hundreds of thousands of honest taxpayers.

How the I.R.S. responds to taxpayers remained the advocate’s overriding concern.

“Having written a tax code so widely and rightly criticized for its complexity, the government has a practical and moral obligation to help taxpayers comply,” Ms. Olson’s report said. “It should not withdraw existing taxpayer service to the point where taxpayers have to incur additional compliance costs just to file their returns and pay their taxes.”