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Longstanding Funding Shortfalls Fuel Public Perception of IRS

April 22, 2022, 8:45 AM

Even if you hate it, you can’t avoid it.

The IRS is the only organization that deals directly with almost every family and business in America, to the tune of 922 million interactions annually. That wide reach means the public’s perception of the IRS greatly influences how the agency does its job and how the public views the whole government.

As a businessperson for more than 50 years, with a five-year detour as IRS commissioner, I have first-hand knowledge of how the public’s perceptions compare to the reality of the IRS. Here is my take on the three most important topics: trust, service, and effectiveness.

Read more: Catch up on our Fixing the IRS series here.


Since the IRS processes trillions of dollars and has authority to audit and investigate citizens, trust in the agency is critical. If money was diverted to improper purpose, or if IRS authority was misused for political or personal reasons, confidence in our entire tax system would be shaken. Fortunately, in this area, the reality and perception are broadly aligned. In a recent survey, 73% of taxpayers completely or mostly agreed that “I trust the IRS to fairly enforce the tax laws as enacted by Congress and the President.”

This perception is accurate because incidents of dishonesty, favoritism, or unauthorized disclosure of taxpayer data by the IRS are vanishingly small. This is not an accident. Starting in the 1950s, Congress eliminated all but two political positions in IRS, strengthened laws on improper disclosure of taxpayer information and taxpayer rights, and established an agency of nearly 1,000 employees outside the IRS whose sole purpose is investigating, auditing, and publicly reporting on wrongdoing or mistakes in the IRS. As a result of these laws and practices, every IRS employee knows from Day One that their first duty is to uphold a culture of honesty and impartiality, and violators will be found and punished.

Although improper incidents are extremely rare, no large organization is 100% perfect. So when an incident occurs, it attracts major attention and unfortunately resonates especially with the minority of people who already distrust the IRS. Nearly 10 years ago, a highly publicized incident occurred when a small IRS group used some inappropriately political keywords to review certain applications of organizations for nonprofit status. This incident was thoroughly investigated, the executives involved were terminated, and nothing remotely similar has occurred for more than a decade.

More recently, a published article claimed to have access to the tax records of some of the wealthiest people in America. It is not clear where this information came from, as the publication did not say and sources other than the IRS have access to tax return data. What is certain is that the incident is being relentlessly investigated and, if it came from the IRS, severe consequences for anyone involved will follow.

As commissioner, I was required to and did terminate an employee in one case who simply checked the tax record of a former spouse. My research has not identified any instances since 1998 where IRS employees were charged with leaking individual or corporate tax returns.

It is a great asset for our country that we have a tax agency that the majority of the public understands is resolutely honest and impartial.


Most taxpayers file an accurate return and receive a refund or pay any balance due, and that is all there is to it.

Unfortunately, it is the exceptions that require specific services from the IRS and that understandably drive the public’s perception of IRS service. And with hundreds of millions of transactions, there are plenty of exceptions, including errors by taxpayers and the IRS.

When a problem occurs with a return, the IRS sends the taxpayer a “notice,” usually requiring a response. And when the taxpayer has a question, it may try to call the IRS. All too many “notices” are hard to understand or are incorrect, and taxpayer calls often go unanswered or are unable to resolve the problem.

The impact of the pandemic on the IRS workforce elevated these perennial problems to a crisis level. If a taxpayer called, only 11% of calls were answered. As a result, only 37% of the public thinks the IRS is doing a good or fair job.

This unacceptable level of service is directly due to long standing underinvestment in the IRS workforce and technology.


Since the IRS turns over to the U.S. Treasury almost $4 trillion per year, most people believe that whatever its faults, it is effective in collecting revenue. Ironically, the pubic typically overestimates this aspect of IRS effectiveness. Most of the money the IRS receives is simply sent in by employers who withhold it from employees’ paychecks or is clearly reported to the IRS by the taxpayer’s bank.

The IRS is far less effective in identifying and collecting taxes from taxpayers who underreport their income because it is derived from more opaque sources, such as from partnerships and other kinds of business income. As a result, the amount of taxes that are legally owed but not paid (called the tax gap) has grown to $600 billion per year, more than all of the income taxes paid by the bottom 135 million taxpayers. Over 90% of taxpayers believe that those who don’t pay what they owe should be held accountable, but IRS auditing currently recovers less than 3% of the lost amount.

Decades of underinvestment in the IRS while the economy has grown larger and more complex—and while the IRS has been assigned ever-increasing responsibilities—have left the agency with seriously outdated methods, data, and technology, as well as inadequate resources to ensure an acceptable level of compliance with the tax laws.

The IRS budget today is only 49% the size it was relative to the economy in 1993. Since then, the number of individual tax returns has increased by 38% and business returns by 84%. But even those numbers don’t begin to capture the massive increase in IRS responsibilities for administering benefit programs like the Affordable Care Act and the 179 individual and 129 business tax credits in the tax code.

The American public deserves a tax agency that is honest and fair, provides quality service to the vast majority of honest taxpayer, and is effective in collecting taxes from the minority who don’t pay what they owe. For scores of years, the IRS has proven it is capable of fulfilling its broad and complex mandate if it is provided the long-term commitment of direction and resources needed to rebuild and to update its methods, technology, and workforce.

Congress has the opportunity to pass legislation this year that would appropriately provide this essential commitment.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Charles O. Rossotti was commissioner of the Internal Revenue Service from 1997 to 2002. He is a senior adviser at Carlyle and focuses primarily on investments in information technology and business services.

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