Lew: Underfunding of IRS could cause long-term problems

Treasury Department Secretary Jack Lew warned senators on Tuesday that continued underfunding of the Internal Revenue Service (IRS) could cause long-term problems.

“Budget reductions at the IRS cost the country billions of dollars each year in lost revenue, contribute to inadequate customer service for taxpayers and leave necessary cybersecurity protections unfunded,” Lew said at a hearing of a Senate Appropriations Financial Services and General Government subcommittee.

{mosads}“A sustained deterioration in taxpayer services combined with diminished enforcement capacity could create serious long-term risk for the U.S. tax system,” he added.

The IRS received a funding increase in fiscal 2016 for the first time in several years, but the agency remains “severely underfunded,” Lew said. The agency is requesting a total funding increase of about $1 billion for fiscal 2017.

The IRS’s telephone service level was only at 38 percent in fiscal 2015, and it is expected to be at 47 percent this fiscal year. If the IRS receives its full funding request for fiscal 2017, the agency could raise that level to 70 percent, Lew said.

IRS Commissioner John Koskinen said the agency ultimately hopes to get back to the levels of the mid-2000s, when the service level was 80 percent and the call wait time was less than three minutes.

Sen. Dick Durbin (D-Ill.) said, “We owe it to taxpayers to treat them fairly and in a courteous way” until Congress devises a government that doesn’t collect taxes.

“What we have done to the Internal Revenue Service in terms of their taxpayer services, by virtue of cutting back dramatically on appropriations, is a sad commentary on Congress’s relationship with the IRS,” Durbin said. He added that no Congress member could get reelected if they had the same phone wait times for constituents.

Sen. John Boozman (R-Ark.), the subcommittee’s chairman, said there is a need for oversight of the IRS.

“When the IRS engages in behavior that breaches the trust of the American people, it undermines taxpayers’ faith in the impartiality of the agency,” he said. He also expressed concern about the IRS rehiring employees with previous performance problems and prioritizing employee bonuses.

Koskinen said the agency doesn’t provide bonuses, but rather it provides “performance awards.” The amount being paid is “smaller than it used to be,” and the agency no longer gives the awards to employees with tax or performance issues, he said.

Koskinen estimated that the total amount of the awards would be around $55 million to $60 million in fiscal 2015. It is important to reward performance, particularly given that the number of employees is declining, he said.

Boozman and others at the hearing also expressed concern about scams and identity theft.

Sen. Barbara Mikulski (D-Md.) said that she recently received a phone call from scammers who claimed she was being sued by the IRS. She asked Koskinen what actions people should take if they receive a call from scammers.

Koskinen, who said he has received a phone call from scammers himself, said the agency has made efforts to warn taxpayers that if they are surprised to be hearing from the IRS, they are not hearing from the IRS. If taxpayers are threatened by someone pretending to be the IRS, they should write down the phone number and alert authorities.