Explain This to IRS: Tax Agency Is $32 Billion Short

If you call the IRS don't expect them to answer the phone

The Internal Revenue Service suddenly reduced the amount of revenue it reported from delinquent collections by $32 billion, or about 27 percent, providing little information about what happened to the money, according to a report released Wednesday morning.

"There is an astonishing lack of transparency as to what is included in these revenue figures and how they are computed," said National Taxpayer Advocate Nina E. Olson as part of her annual report to Congress. "The failure to highlight and explain revisions of such magnitude erodes confidence in IRS's data reporting."

The IRS reported more than $121 billion in delinquent tax collection revenues from 2005 to 2007. But in its 2008 IRS Data Book, it quietly revised the number downward to less than $89 billion. Olson's report said that was part of a larger picture of the IRS now having a handle on what type of collection activities really bring in revenue.

IRS spokeswoman Michelle Eldridge said the IRS will explain the discrepancy this spring in its next Data Book. The $32 billion was taken off the revenue total because some of it involved double counting, she said. For instance, if four officers of a firm owed $1,000 for not paying payroll taxes and one of them paid the bill, it might be accidentally credited as $1,000 in revenue multiplied by all four officers.

Pete Sepp, vice president of the National Taxpayers Union, said the IRS appeared to be "obfuscating" whether additional funding for collecting delinquent taxes had actually yielded any results. "It's either a terrible deception or a terrible oversight. One way or another, Congress should get an answer."

A taxpayer could call and ask. But don't count on the phone being answered.

According to Olson's report, the IRS only plans to answer 71 percent of the calls it gets this year. That's barely above the 69 percent level in 1998 when Congress got so fed up with complaints about taxpayer service that it reformed the agency. And the numbers have gone down in recent years – during the 2009 tax filing season, only 64 percent of callers got through.

"It's a terrible indictment in this day and age that an agency can't even answer its phones," Sepp said. "That's setting the bar awfully low and would probably bankrupt any customer-service-oriented business."

When the call does go through, the IRS estimates that the taxpayers will be on hold for almost 12 minutes.

"This level of service is unacceptable," said Olson, whose office is part of the IRS but is charged with protecting the interests of taxpayers.

Eldridge said that although the percentage is down, the total number of calls answered was up – from 34 million in 2007 to 40 million in 2008 and 39 million last year. The past two years involved more callers with questions because of the rebate and other changes made in economic stimulus legislation.

And many of the calls that weren't answered were because taxpayers were redirected to IRS.gov, which could help them track their coming refund or answer questions. "While they are waiting on the phone lines, we are giving them other options," Eldridge said.

Olson also rapped the IRS for ramping up its filing of liens against taxpayers. She said a study has shown the lien increases have not brought in more revenue. Filing liens against people with little or no property ends up damaging their credit and making it harder for them to pay taxes in the future. The IRS should look at their ability to pay, including their other debts like credit cards, before deciding on a lien, she proposed.

Eldridge said studies other than the one cited by the taxpayer advocate office show the liens are an effective tool.

Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, said the IRS seems more interested in helping big banks getting bailouts than small businesses.

"The placement of liens on the little guys shouldn't be automatic and computer-generated while the big banks get the benefit of agency discretion and concern in the executive offices. One, it's unfair, and two, it's bad for the economy," he said.

"The IRS has to use its discretion to determine when liens are the best course to improve tax collection and when they're just a knee-jerk enforcement tactic that will do more harm than good."

Grassley sought answers Wednesday, including the whereabouts of the $32 billion.

"This single data point seems to indicate that not only does the IRS have a problem in knowing who owes what, the agency apparently also isn't able to properly track the taxes that have been collected," Grassley said. "The problem deserves the attention of IRS top management, as well as policy-makers who are intent on giving the IRS more and more responsibilities."

Democrats in Congress are considering a health care bill that would make the IRS involved in enforcing a new requirement that people carry health insurance.

Howard Gleckman, a tax policy expert at the Urban Institute, said the concern is valid.

"It is absolutely true we are asking the IRS to take on a huge rule when it is having a hard time doing the job it is there to do," he said. "On the other hand, if someone in the government is going to do this, the IRS is probably the best place. The IRS already has contact with almost every American."