Clients may need hand-holding this tax season

The headline was clearly tongue-in-cheek: “2015 Is the Best Year Yet to Cheat on Your Taxes.” But its point was not. The article was about the national taxpayer advocate's annual report to Congress in which she detailed, among other things, how cuts to the Internal Revenue Service's budget over the last five years have led to a “devastating erosion of service” that will have a big impact on tax filers, both individually and collectively. Indeed, in her report, the advocate, Nina Olson, listed taxpayer service as “Most Serious Problem #1,” noting that while the IRS budget dropped by about 17% between fiscal years 2010 and 2015, the number of taxpayers — both individual and business — has increased “significantly,” which has led to an equally significant deterioration in service. Ms. Olson reported that in fiscal 2014, 35.6% of phone calls to the IRS went unanswered by taxpayer service reps and 50% of correspondence with the agency was not handled in a timely manner.

"DOWNWARD SPIRAL'

“When the IRS does not answer the calls its taxpayers are making to it, and when it does not timely read and respond to the letters its taxpayers are sending it, the tax system goes into a downward spiral,” she wrote. “Taxpayers do not get answers to their questions, so they must either pay for advice they would otherwise obtain for free, or they proceed without any advice at all, leading to future compliance problems.” That's good news and bad news for financial advisers. The good news is that the lack of assistance from the IRS can provide an opportunity to fill that gap either directly or by referring clients to a trusted accountant or tax lawyer. The bad news is that more clients are likely to get hung up (not literally, we hope) when they're doing their taxes and won't be able to get help or guidance from the IRS. In light of Ms. Olson's 58-page report, in which she also calls for “fundamental” tax reform, we would add our voices to those calling on Congress to end the nitpicking around the edges and work to bring the tax code into the 21st century. In the meantime, however, perhaps the IRS can re-examine its budgetary priorities and direct more of its shrinking resources to taxpayer guidance and assistance.