At the annual meeting of the California Tax Bar and California Tax Policy Conference in San Jose, Calif., Olson gave a preview of a special report she will submit along with her 2013 annual report to Congress. The special report will identify what Olson contends are the most significant issues facing the IRS because of the changing nature of tax administration.
Olson said the IRS is an institution in crisis, as budget cuts have forced it to replace human contact with automation in many instances. "Getting through to the IRS is pretty near impossible," she said. In the last week of October, the level of service -- that is, the percentage of telephone callers seeking live assistance who receive it -- was 39 percent.
"That means that two-thirds of taxpayers who were trying to get live contact could not get through," Olson said, adding that that level was worse than in the period leading up to the Internal Revenue Service Restructuring and Reform Act of 1998. The overall level of service for 2013 is projected to be 62 percent.
"What's causing that?" Olson asked, adding, "It's simply a budget matter -- we need more human beings available to pick up the phone and answer the taxpayers."
Compounding that problem are large inventories of unanswered correspondence, said Olson, adding that 70 percent of adjustment correspondence, and 50 percent of all correspondence, is overage. "That means the likelihood of a taxpayer getting a notice of deficiency -- even though he is trying to talk to the IRS and settle it without going to Tax Court -- is very low," she said.
"The same thing is true with collection -- we've automated our collection system," Olson continued. "The ratio of levies to cases is about 86 percent. If you can't get through on the phone, what happens? The money goes out the door, from the taxpayer's point of view. Then they have to keep trying to get through to the IRS to get that money back. This is what we're doing with individual taxpayers in tax administration today, and I don't know how long we can keep doing that to people until they start walking with their feet and go underground."
The budget cuts are also affecting crucial services available to society's most vulnerable, since the IRS has announced that its walk-in clinics will no longer be able to provide free return preparation (limited since 2002 to elderly, disabled, and low-income taxpayers) as of January 1, 2014, Olson said. "I think that preparing tax returns for our citizens is a core tax administration duty, and I don't know of any country that's a member of the OECD that is not doing that except" the United States, she said, adding, "I think that's a shameful thing, but that's the new paradigm of tax administration."
The IRS also has slashed its employee training and travel budget by 83 percent over the last three years, said Olson. "And that budget cut applies to every single function within the IRS," she said, adding that the reduction in training has dimmed the sense of professionalism at the Service.
"The question of why on earth would you want to work for the IRS is a really good question these days," Olson said. Many employees are no longer splitting their career between the IRS and the private sector, so the agency won't benefit from employees who can provide a public-private perspective, she said.
"I'm greatly concerned about the erosion of taxpayer rights values in the IRS," Olson said, explaining that as the Service becomes more automated and employees are put on single tracks within their division, "they not only don't get their technical training, but they aren't trained on basic tax administration principles. So when they're confronted with a case that just doesn't feel right and isn't covered in their Internal Revenue Manual with an 'if, then' chart, they don't have the ability to reason through it and say, 'This doesn't make sense,' and articulate that to their supervisors so they themselves can make changes."
Olson said she recently submitted a report to acting IRS Commissioner Daniel Werfel in which she urged the adoption of a taxpayer bill of rights that she said would ensure that the Service adheres to the fundamental principles of tax administration. "Once employees have had initial training, there is very little ongoing training on taxpayer rights," she said. "It's not in the IRM; there are just superficial announcements at the most. If you don't know the legal significance of principles like fairness and access to justice in our tax system, then you won't do your job well."
"That's what we do to our employees," Olson said. "We sell them short by not telling them about the importance of tax administration."