The anticipated FY2015 budget for the IRS took center stage at the IRS Oversight Board’s last meeting of 2014. The Board was briefed by senior IRS officials that the agency remains concerned about potential funding reductions in FY2015 but is committed to implementing unfunded mandates, such as the Affordable Care Act, FATCA, and a pay raise.
All told, the IRS will likely have to absorb approximately $345 million in additional costs, causing serious implications for customer service, enforcement, refund fraud, and information technology infrastructure.
The Oversight Board expressed its concerns over the potential cuts to the IRS’ budget and the impact to critical services the agency provides. Moreover, a flat budget in FY2015 would be almost $700 million less than required to meet even post-sequestration capacity. Since FY2013, the number of individual and business taxpayers has increased by 4.2 million while the costs of current operations have grown by 3.1 percent.
"The IRS’ budget and taxpayer needs are moving in opposite directions," observed Chairman Cherecwich. "This trend is not sustainable in either the short- or long-term and the effects can be seen both in declines in customer service and enforcement, and also lost opportunities." For example, with an additional 951 Full Time Equivalents (FTE), the IRS could have increased Level of Service on its toll-free lines to 75%, while serving an additional 4.4 million taxpayers and cutting wait times by 36%. Additionally, more resources in the FY2014 budget could have generated billions of dollars in additional revenue to help reduce the government-wide budget deficit.
With a shrinking budget and workforce, self-service online applications take on even greater importance. For example, the cost per digital interaction is only 17 cents as compared to $33 dollars for each assisted call on the IRS toll free lines. One of the more innovative ideas to improve customer service is to make self-service the least burdensome, easiest option for most services via an IRS Online Account.
The Board was briefed on the 2015 filing season, which presents a number of challenges, including uncertainty regarding tax extender legislation and an anticipated higher volume of calls related to the Affordable Care Act (ACA). The IRS has projected that only half of taxpayers calling the IRS will get through to a customer service representative during the filing season. To help mitigate these problems and address taxpayer confusion, the IRS is conducting an aggressive ACA outreach and education campaign through multiple communication channels and will offer an informative, plain-language web page on IRS.gov.
Due to budget cuts, IRS training has taken a huge hit, although the IRS told the Board that it anticipates years of steady declines are beginning to level off. The IRS is also relying increasingly on virtual training, which the Board believes is cost effective, but cannot fully take the place of in-person training, especially for new employees.
The Board was briefed that refund fraud continues to be a problem for the Earned Income Tax Credit (EITC) program. However, traditional enforcement programs protected over $3.4 billion from being issued in Fiscal Year 2014 and the IRS plans to continue its multi-year "test and learn" approach for EITC preparers. The IRS’ Enterprise Risk Management program is also in full swing with training for managers and communications to all employees slated for FY2015.
This was the last Board meeting for Chairman Paul Cherecwich, Jr. who is retiring after eight years of service – seven of which as chairman. At the conclusion of the meeting, Mr. Cherecwich stated, "It has been an honor and privilege to have served as Chairman of the Oversight Board these past seven years. I believe that we provided the long-term strategic vision and direction for the IRS as intended by the IRS Restructuring and Reform Act of 1998, and our tax system is the better for it. However, the Board cannot continue to do its job with so many vacancies. I urge the President to nominate more Board members and for the Senate to act expeditiously on them."