A Big IRS Job and Fewer People to Do It

The IRS can't do its job if it doesn't have enough employees.

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FILE - This March 22, 2013 file photo shows the exterior of the Internal Revenue Service building in Washington. No one answered the phone at the IRS hotline for tax help. Forget about advice on avoiding foreclosures at one of the Housing and Urban Development offices nationwide. Roughly five percent of the federal workforce _ 115,000 people at six government agencies _ got an unpaid day off on Friday due to the automatic cuts to the government budget. The furloughs forced some agencies such as the IRS and HUD to drastically scale back operations.

Kenneth P. Thomas is professor of Political Science and fellow in the Center for International Studies at the University of Missouri-St. Louis. He is the author of "Competing for Capital: Europe and North America in a Global Era" and "Investment Incentives and the Global Competition for Capital." He blogs at Middle Class Political Economist.

Ever wonder why you have to wait so long on the phone when you call the Internal Revenue Service? A big part of the reason is that IRS staffing levels have fallen sharply over the last 20 years, even as the number of returns has risen substantially.

Jason Fichtner and Jacob Feldman report IRS data showing that only 68 percent of all phone calls to the IRS were even answered in fiscal year 2012. This needs to be viewed in terms of how many employees the IRS actually has to answer phones, process returns, conduct audits and so forth.

In fiscal year 1992, the agency had 117,945 employees, according to data from TRAC-IRS at the University of Syracuse. By 2012, this had fallen 23 percent to 90,280. At the same time, the number of returns increased 27 percent, from 113.1 million to 143.4 million. How can we expect the IRS to square this circle?

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Part of the answer, of course, is technology. For instance, in 2012 the IRS was able to move from weekly to daily processing of tax returns with the introduction of Customer Account Data Engine 2. Moreover, e-filing reached its 80 percent goal in 2012. These speed the process along for ordinary returns.

Auditing now is partially automated as well. As TRAC-IRS shows, over 20 years so-called correspondence audits have substantially replaced face-to-face audits. Whereas 746,806 audits were face-to-face and only 459,213 were by correspondence in fiscal year 1992, as of 2012, there were only 358,435 face-to-face audits (a decline of 52 percent) and 1,123,531 correspondence audits (an increase of 145 percent). TRAC-IRS also reports that the agency is expecting a 14 percent decline from 2011 to 2013 in the amount of available hours for auditing large and international firms.

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This is a big problem, because that's where the money is. Ask Apple. Accounting Today reports IRS estimates that its compliance and enforcement efforts pay off more than $4 in taxes for every $1 invested in them. As a result, the continuing budget cuts to the agency not only threaten its customer service but its core function of collecting taxes.

Indeed, some enforcement investments can have much bigger payoffs. German officials in the state of Rhineland-Palatinate paid an informant 4 million euros for a CD of data on Germans with secret Swiss bank accounts, apparently at Credit Suisse. The expected return on this was 500 million euros, an astounding 125-fold payoff.

With the current controversy engulfing the IRS, agency bashing is now a bigger sport than ever. But making the IRS unable to do its many jobs is not the answer.

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