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Koskinen highlights IRS’s filing season successes & stresses consequences of underfunding

Prepared remarks of IRS Commissioner John Koskinen before the National Press Club (Mar. 24, 2016).

In a March 24 speech before the National Press Club, IRS Commissioner John Koskinen touted IRS’s largely behind-the-scene successes in ensuring a smooth filing season, such as improved levels of service and continuing efforts to prevent identity theft. He also spoke about the impact that underfunding has on IRS, including a significant drop in personnel and the potential negative effect this could have on voluntary compliance, and also called on Congress to renew IRS’s streamlined critical pay authority that enabled it to recruit and hire employees with high levels of technical expertise.

2016 filing season. Koskinen stated that IRS has already received more than 80 million individual tax returns of an expected 150 million total. In addition, over 65 million refunds have been issued, totalling almost $190 billion, most within three weeks of their submission. He noted that approximately 40% of IRS’s budget goes to helping taxpayers comply with the law, in the form of services and investments in taxpayer-friendly technology. He stated that IRS’s website has already had 248 million hits this year and that over 8 million calls have been answered.

Identity theft. Koskinen said that “[s]afeguarding taxpayers and the tax system from the growing problem of identity theft is one of our top concerns.” He spoke of the Security Summit, which brought together IRS, the private-sector tax industry, and states, and said that the Summit’s joint efforts has resulted in a safer and more secure tax filing experience in 2016. Koskinen noted that some of the new protections are apparent, such as new sign-in requirements to access tax software accounts, but that many are “invisible to taxpayers.” He also described the “Taxes, Security, Together” campaign as helping raise awareness about “things people can do to protect themselves and avoid becoming victims of identity theft.”

Revenue collection. According to Koskinen, IRS brings in about 92% of all federal revenue, comprised of about $50 billion to $60 billion through enforcement activities and approximately $3.3 trillion from voluntarily compliant taxpayers. He said that IRS spends about 35 cents to collect $100 in revenue, which he called “a pretty good deal for the American people,” and which he noted was approximately half of the amounts spent by the average OECD (Organization for Economic Cooperation and Development) member country (e.g., Germany, France, the United Kingdom, Canada, and Australia). He estimated that, if Congress were to provide IRS with an additional $1 billion in funding, as requested in President Obama’s Fiscal Year 2017 budget proposal, that such would yield $64 billion in revenue over the next ten years—not from new taxes, but from money that’s already owed but not collected due to staffing shortages.

Effects of funding cuts. IRS’s budget for the current fiscal year is about $900 million below that for 2010, and most of the cuts have been absorbed by not replacing retiring or otherwise departing employees. With the projected number of employees expected to leave this year, Koskinen stated that about 17,000 full-time employees will have been lost through attrition since 2010. These staffing losses have meant fewer audits and declining audit revenue. In addition to the effect on IRS’s compliance programs themselves, Koskinen emphasized that “these cuts also create risk for our system of voluntary compliance.” He said that most people voluntarily meet their obligations, but that compliance could drop if people think that others aren’t paying their fair share, if they think that they’re not going to get caught if they cheat, or if they’re unable to get help they need from IRS—and that a 1% drop in compliance translates into a revenue loss of over $30 billion per year.

Workforce demographics. Koskinen said that more than 40% of the IRS workforce will be able to retire by 2019, and that there are only 200 employees age 25 or younger out of an 85,000-employee workforce. He emphasized the importance for any organization to have the experience and institutional knowledge of older workers, but was concerned that “if we don’t have enough young workers in the pipeline, the IRS will have great difficulty developing the next group of leaders it needs five or 10 years down the road.”

Modernization. Koskinen spoke of efforts made over the past few years at IRS to modernize its business systems, including the Customer Account Data Engine (CADE2), which has resulted in faster refunds and improved customer service, and Modernized e-File, which allows IRS to “process tax returns electronically in near real time.” He also spoke of IRS’s “streamlined critical pay authority,” which was a special hiring authority that allowed IRS to “recruit and hire technical IT experts just like a private sector company would” (i.e., without the multiple month wait typically associated with the government’s hiring system). This authority expired at the end of the 2013 fiscal year, and the 4-year terms of the individuals hired under that authority are coming to an end. Koskinen said that, given that IRS has “one of the largest and most sensitive databases in the world,” renewing this special hiring authority would be one of the best things Congress could do to help taxpayers.

Next steps. According to Koskinen, IRS is now looking to improve its operations so that taxpayers can do their business with IRS online, quickly and securely—but, while doing so, still remaining committed to providing services to taxpayers who cannot or choose not to conduct their IRS transactions online. He emphasized that improvements to dealing with IRS online will actually free up resources for those who choose to call or get help in person. He said that one of the biggest challenges is making sure that taxpayers’ online accounts are properly protected. To that end, IRS is “moving beyond asking for information that used to be known only to individuals but now, in many cases, is readily available to criminal organizations that have stolen it from various sources.”