When clients come to Bill Nemeth, they have one wish: Please make it go away. "It," in this case, is a problem with the Internal Revenue Service.
Nemeth makes his living representing people before the IRS: He's an enrolled agent, the highest credential the IRS awards. He helps makes nasty tax things — fines, penalties, liens — go away. He's on the phone with the IRS every day. But these days, he's mostly on hold. "I was on hold for an hour and a half last night," he says.
And Nemeth gets to use the practitioner priority line, which puts him ahead of regular taxpayers who just want to know what form they have to file for reporting a capital gain from a stock loss. (That would be Schedule D.) Nemeth says his wait time used to be 15 minutes or so. Now it's often more than an hour.
(Read more: Taxes)
For the average taxpayer, the waits are long and often futile: 39% of those who called the IRS last year simply hung up before their call was answered, according to a scathing recent report by the IRS Taxpayer Advocate, whose job is to take the taxpayer's side at the IRS. (The IRS typically responds to the report at midyear.) And it's only going to get worse. "Given our very limited resources, phone lines will be very busy, and there will frequently be extensive wait times," IRS Commissioner John Koskinen said on the agency's official YouTube video about the 2013 tax year.
And as much as people love to hate the IRS, the agency's problems become taxpayer's problems. Poor customer service means that many more people will pay someone else to do their taxes, which simply becomes another cost of dealing with the federal government. And for some people, the IRS's woes mean that basic mistakes in filing could ultimately become big costs that involve fines, penalties, liens — and hiring people like Bill Nemeth.
IRS customer service has been struggling for the past three years, and the cause is fairly simple: Congress has consistently cut its budget. "Congress doesn't like the IRS," Nemeth says, and Congress is unlikely to get much blowback when it cuts the not exactly beloved agency's budget. While the president requested $340 million in funding for the IRS because of the Affordable Care Act, none of that was funded by Congress. But the IRS has to do what the law requires it to do, Koskinen says. "If other things don't get done, that's what we'll do."
Even without the ACA funding, the cuts have been severe. In the government's budget year 2012, the IRS allotted $172 million to training its customer service representatives, according to the IRS Taxpayer Advocate. The IRS now has $22 million to train those same people — an 87% drop.
At the same time, the IRS lost 8,000 employees between 2010 and 2012, says Edward Jenkins, tax director at CBIZ MHM, an accounting firm in Plymouth Meeting in suburban Philadelphia, Some of that is because of the aging of the IRS workforce, Jenkins says . In the government's fiscal year 2017, 70% of IRS executives and half of non-executives will be ready to retire, he says.
And tight budgets mean that it's hard to keep good employees, particularly when they can work for better pay at CPA firms elsewhere. "You're seeing very few pay raises, which makes it not exactly a great place to work," Jenkins says.
Fewer workers and less training mean the IRS is less able to help taxpayers, particularly the elderly and disabled. Ten years ago, according to the IRS, the agency prepared 476,000 tax returns for those taxpayers. It will do none in the 2013 tax filing season, the Advocate's report says. And, says IRS Commissioner Koskinen, "Our employees would be delighted to provide better services. We have town hall meetings where they can ask anything. The common theme is that there are not enough people to get the work done."
(Read more: Your money, your future)
Taxpayers looking for answers on tax law will have to look elsewhere, the IRS says. It will only answer basic tax questions this year, and that's assuming taxpayers can get through. Last year, the IRS could only answer questions from 61% of callers, down from 87% ten years earlier. And don't be surprised if you hear recorded messages suggesting you find your answers elsewhere. "You can expect more and more gentle shoves to the IRS Web page," Jenkins says.
Automation is a good solution for many taxpayers, Koskinen says. Instead of calling the IRS to find out when their refund is coming, they can now find out online. And this year, you can get your previous filings from the IRS online. "The online system is better than it used to be," Koskinen says. "But you're still going to end up with 15 to 20 million calls unanswered this year."