Republicans: IRS Chose to Pay Bonuses Rather than Improve Customer Service

Notwithstanding recent complaints from the Internal Revenue Service about budget cuts, the “poor customer service” on phone lines at taxpayer assistance centers during the tax filing season is the agency’s own fault, House Republicans said Wednesday in a new report.

The Ways and Means Committee said it has “found extensive evidence that the IRS deliberately cut funding for customer service that was fully under its control.”

Released as Internal Revenue Commissioner John Koskinen testified before the Ways and Means Oversight panel on progress during filing season, the report challenges the tax agency’s decisions to spend money on bonuses, stop collecting user fees and allow employees union time.

“These findings are deeply troubling,” said Ways and Means Chairman Rep. Paul Ryan, R-Wis. “At all times, but especially during tax season, the IRS should put the taxpayer first. But instead, the agency cut funding for the very customer service that taxpayers rely on. The IRS has a lot to answer for, and the Ways and Means Committee is going to hold it accountable.”

Titled “Doing Less with Less: The IRS’ Spending Decisions Harm Taxpayers,” the report takes as its starting point the 2013 controversy over alleged political targeting of largely conservative nonprofits at the agency’s Exempt Organizations division. “As a result of the IRS’ blatant misconduct, Congress significantly reduced the agency’s budget,” the report said. “Since its funding peak in 2010, the IRS’ budget has been cut by $1.2 billion.”

Examples of the agency’s questionable budget decisions listed in the report included:

• Implementing a 73 percent reduction in user fees allocated to customer service, and a 6 percent decrease in total funding for taxpayer assistance; 
• Awarding $60 million in bonuses to its employees at a time when the IRS did not yet know what its budget would be for fiscal year 2015;
• Allowing IRS employees to spend time on union activity with funds that would have financed  more than 2 million additional taxpayer-assistance calls;
• Not contracting with private debt collectors who could increase the IRS enforcement budget by more than $100 million every year;
• Prioritizing Affordable Care Act implementation over other activities, including taxpayer assistance;
• Failing to adequately cut the rate of improper payments of the Earned Income Tax Credit;
• Spending $2.1 million on litigation services that the government could easily have performed itself (and which may have improperly shared confidential taxpayer information);
• Spending money on unsuccessful information technology investments, but successfully implementing a comprehensive IT system to implement the Affordable Care Act; and,
• Not addressing the estimated total tax delinquency of 3.12 percent for federal employees, representing over $3.5 billion owed in taxes.

"This year, the IRS only plans to spend $49 million in user fees on taxpayer services,” said Subcommittee Chairman Rep. Peter Roskam, R-Ill. That's $134 million less than last year, a 73 percent cut. If the IRS had used that $134 million to answer calls for assistance, it could have helped 16 million people.” He called Koskinen’s cries that Congress’ budget cuts have harmed service “a straw man.”

At the hearing, Koskinen rebutted the assertions, saying his workforce’s handling of filing season was a notable achievement. He repeated past arguments that the agency has 13,000 fewer employers than it had five years ago and that budget cuts have affected all of its programs, including the enforcement and compliance efforts that boost the amount of revenue the agency can collect.

“We took that user fee money and transferred it to IT modernization and implementing the Affordable Care Act,” he said. “Congress gave us zero dollars for those, so we had no choice.”

Asked about the 500,000 hours of annual union activity, Koskinen said union time “helps employees make the workforce more efficient, though it is not a direct enforcement activity. It’s good stewardship.”  He added that union time has been reduced by 100,000 hours thanks to virtual conferencing. “Ultimately, union time is an important part of the workplace, a place where people can go to raise concerns about a personal situation or work situation,” he said. “Congress passed a law saying there is a right to have a union, and they have the right to work on official time.”

Several lawmakers questioned IRS bonuses, noting that Acting Commissioner Danny Werfel in 2013 canceled them.  The performance awards, which don’t go to as many as 45 percent of employees, “are only $1,100 or $1,200—not enough to go to Bimini,” Koskinen replied, citing his use of incentive bonuses in the private sector. “I believe they’re an appropriate thing for a workforce under stress,” he said, adding that Werfel’s canceling of bonuses was a one-time move to avoid furloughs.

Asked whether private debt collectors could improve revenue collection by as much as $100 million, Koskinen said when tried in the past, the practice proved to be not worth the money.

Rep. Mike Kelly, R-Pa., told the commissioner his communications to employees that they must “do less with less” did not make sense. “The IRS thinks Congress is out to get them, but the American people think the IRS and the government is out to get them,” Kelly said. “So, to have you go to your troops and say things have never been darker, that harms our ability to work together. It’s spring, there’s new technology available. Let’s be a little more upbeat,” he said.

Koskinen replied that, “We value customer service, but when you cut employees, we don’t just cut one thing, we cut across the board. It’s the only choice we have. And there comes a point when morale declines when employees who see the person next to them leave and know they won’t be replaced. You can’t pick up after losing 13,000 people and do the same customer service.” Instead of do more with less, he added, “Perhaps the mantra ought to be ‘doing as much as you can with less.’ “

Democrats sought to support Koskinen. Rep. Joe Crowley, D-N.Y., said, “Cutting the agency may feel good, but it doesn’t actually do anything for our constituents. Let’s put aside the huffing and puffing and the press releases and shouts. They don’t help senior citizens trying to get tax help from home” or small businesses and nonprofits trying to navigate the tax system.

Colleen Kelley, national president of the National Treasury Employees Union, said in an email after the hearing, “The IRS expects to lose an additional 1,800 enforcement personnel in fiscal 2015, which means tens of thousands of audits and Field Collection cases will remain unresolved….NTEU is very concerned about the agency’s ability to recruit and retain new and diverse workers. Without additional resources, further degradation in taxpayer services will occur, jeopardizing our voluntary compliance system.”