Watchdog: Budget cuts lead to poor taxpayer service at IRS

The IRS provided poor customer service during this year's tax-filing season as taxpayers struggled with a rise in identity theft and complications related to President Barack Obama's health law, a government watchdog said Wednesday.

A new report by the National Taxpayer Advocate says the IRS has been hampered by budget cuts.

The report says the IRS blocked nearly 1.6 million suspicious tax refunds this year because of concerns about identity theft. About a third turned out to be legitimate, but for long stretches during tax season, fewer than 10 percent of callers could get through to an IRS help line.

"Affected taxpayers often feel like they are victimized a second time by the IRS's processes," said the report by Nina E. Olson. The taxpayer advocate is an independent office within the IRS.

Overall, only 37 percent of people who called the IRS for help during tax season were able to reach a person, the report said. For those who got through, the average time on hold was 23 minutes.

IRS help lines were so overloaded that the system hung up on 8.8 million callers, the report said. That's a huge jump from last year, when the IRS hung up on 544,000 callers.

The IRS calls the hang-ups "courtesy disconnects," because the system hangs up early in the call, rather than making callers wait on hold, only to be disconnected later.

The report noted that taxpayer services suffered just as Americans were faced with new requirements under the health law. For the first time, taxpayers had to say whether they had health insurance the previous year. Millions who received government subsidies to pay for premiums had to report those on their returns. Others who didn't have health insurance had to pay fines.

About 6.6 million taxpayers paid fines because they didn't have health insurance, the report said. The fines averaged $190.

Republicans in Congress adamantly oppose Obama's health law, so some have been working to starve the IRS of funds just as its role in implementing the law ramps up.

Congress has cut the agency's budget by $1.2 billion, to $10.9 billion, since 2010, and House Republicans are proposing more cuts next year.

Republicans say the agency is bloated and chooses to to make cutbacks in taxpayer-service areas for political reasons rather than reduce waste in other areas.