Dealing with the IRS is Already Maddening Published January 11, 2015
Not to be an alarmist here, but it’s safe to say that dealing with the IRS on any level has never really been an efficient endeavor. The truth is that with the current budgetary limitations imposed on the IRS by Congress, things just aren’t going to get any better in the upcoming year.
One of the best sources of information regarding the state of the IRS comes out annually in the National Taxpayer Advocate’s Annual Report to Congress. For those unaware of the Advocate’s office, according to the The Taxpayer Advocate Service’s (TAS) website they are “an independent organization within the IRS that works in two main ways – helping taxpayers with individual problems, and recommending “big picture” or systemic changes at the IRS or in the tax laws.” This Annual Report addresses the “systemic issues” that are currently making dealing with the IRS a giant pain.
Let’s take a look at what is noted as the most serious problem #1–“TAXPAYER SERVICE: Taxpayer Service Has Reached Unacceptably Low Levels and Is Getting Worse, Creating Compliance Barriers and Significant Inconvenience for Millions of Taxpayers.” This is a way of simply saying, dealing with the IRS was a nightmare and will be an even bigger nightmare this year.
The decay in taxpayer service can be summed up by a few FY 2014 statistics:
■ 35.6 percent of phone calls went unanswered by customer service representatives;
■ 50 percent of pieces of correspondence were not handled timely;
■ Virtually zero tax returns were prepared by IRS walk-in sites;
■ In 13 states, no outreach and education employees were focused on the 65 million small business and self-employed taxpayers served by the Small Business/Self-Employed Division
And get this–For FY 2015, the IRS originally projected it would achieve a 54 percent level of service on the phones, meaning that almost half of the taxpayers wanting to speak with a live assistor would not get through.
Barring any commentary on how it’s gotten to a point that the bill collector for the federal government, essentially doesn’t answer phone calls and opens its mail whenever it can get around to it, we collectively have a challenge on our hands in dealing with the IRS. This is regardless of whether you are a lender, small business, or a company that interfaces with the IRS on a daily basis.
This downward spiral of service erodes the integrity of the tax system as a whole. Before we all start chanting “We are the Champions” and watch the IRS go up in flames, we must remember that the complex IRS code is still intact, taxpayers must still abide by the laws, and lenders should know whether their borrowers are paying their taxes or not to make sound credit decisions. Therefore, the proverbial tragedy of the IRS burning down doesn’t do any of us that rely on the IRS to do their job, any good.
The reality is that the IRS’s lack of service equates to taxpayers not getting answers to their questions, resolutions to their issues, and generally sends a signal out that compliance is optional. This is where the commercial lender’s ears should perk up. Compliance is NOT optional, yet the powers that be are flying the flag as if they’ve surrendered. The good news is that most small businesses and taxpayers are in compliance and will continue to be in compliance. It’s those that aren’t, or will fall out in the upcoming year, that commercial lenders should be increasingly concerned about. At the end of the day, the state of affairs at the IRS will lead to future compliance problems and a larger risk for commercial lenders as a whole.
This is not a simple resolution when talking about managing the issues of an almost 90,000 employee organization. Likely it’s like any other business in disrepair, the turnaround success lies in a complex mix of balancing the management of funds, improving on operational efficiencies, and personnel improvements.
However, it’s hard not to scratch your head about the the obvious correctable issues, when the IRS operations are glaringly inept. The following graphic is just one example in the Advocate’s report that highlights the customer service vortex that one finds themselves during their “phone journey” to reach someone at the IRS–and this is likely on a good day too:
Regardless of whether these issues can be resolved by a budget increase from Congress or a new IRS commissioner or any other tactic, one thing is true, understanding a prospective and/or current borrower’s status with the IRS is more important than ever. Due diligence has always been the key to effective risk mitigation, but unfortunately, the IRS has made working with them harder than ever.