National Taxpayer Advocate


Gregory S. DuPont Dec. 20, 2019

In her annual report to Congress National Taxpayer Advocate Nina E. Olson expressed concern that the combination of the agency’s growing workload and declining resources has led to an overuse of automated processes to adjust tax liabilities and communicate with taxpayers.

Olson attributed the growth in the agency’s workload to several factors, including the increasing complexity of the tax code, and its frequent changes, the need to provide service to an increasingly diverse taxpayer population, the IRS’s growing responsibility for administering economic and social policies, a surge in refund fraud and tax-related identity theft, and the implementation of new third-party information reporting requirements.

The report noted that there were approximately 4,430 changes to the tax code from 2001–2010, and that the IRS is responsible for explaining each new provision to taxpayers, writing computer code to process returns affected by the provision, and training its auditors to identify improper claims. Moreover, the agency has been tasked with identifying cases of fraud in claiming refundable tax credits and identity theft, crimes that have been increasing in recent years.

The report warned that the IRS is increasingly relying on automated data-matching procedures to identify potentially inaccurate claims and adjust tax liabilities, which generate a large number of errors. For example, when the IRS used math error authority in 2010 to disallow exemptions for dependent children on about 300,000 returns, it ultimately reversed about 55% of the adjustments. Because these IRS adjustments are not classified as audits, taxpayers whose returns are flagged do not have the same protections as those whose returns are audited. In 2010, the IRS made about 15 million contacts with individual taxpayers to adjust their tax liabilities, but the agency treated only about 10% as audits. These practices, Olson said, “harm taxpayers by acting on assumptions of noncompliance arrived at by automated processes that do not solicit, encourage, or allow taxpayer response.”

The report further observed that the level of taxpayer service is declining at the IRS, with the percentage of calls that the IRS answered from taxpayers seeking to speak with a telephone assistor decreasing from 87% in 2004 to 70% in 2011.

Olson stressed that inadequate funding has contributed to many of these problems, and has hampered the agency’s ability to adequately pursue unpaid tax liabilities. Moreover, the report pointed out that compliant taxpayers end up carrying a disproportionate share of the tax burden when the IRS fails to collect the taxes owed. The IRS estimated it was unable to collect $385 billion in taxes in 2006, which amounts to a “noncompliance surtax” of nearly $3,400 per household.

To help address these problems, Olson recommended that Congress develop new budget procedures designed to fund the IRS at a level that will enable it to meet taxpayer needs and maximize tax compliance, while also protecting taxpayer rights and minimizing taxpayer burden. The report further urged Congress to codify a “Taxpayer Bill of Rights” that would list the major rights of taxpayers, including the right to be informed and the right of appeal; as well as taxpayer responsibilities, including the obligation to be cooperative, to provide accurate information, and to pay their taxes on time.