Tax-Code Reform, Not Customer Service, is the Answer to IRS Problems

This probably will beggar belief for the millions of Americans struggling to meet this year’s April 18 deadline to file their income tax returns, but the IRS says it has gotten better at handling taxpayer questions. Two years ago, only 38 percent of the taxpayers who called for help got the assistance they needed. Last year, the number went up to 70 percent.

That the IRS counts this as progress is not exactly reassuring. But it’s very much in keeping with the long and vexed history of what is known as “taxpayer assistance.” For seven decades, the IRS has struggled to answer questions about the increasingly byzantine tax code. Sometimes it has succeeded; just as often, it has failed.

It’s hard to imagine now, but until about the middle of the 20th century, relatively few people filled out Form 1040. The IRS -- then known as the Bureau of Internal Revenue -- did little outreach, and when it did, the rare taxpayers who sought assistance actually spoke with deputy collectors of internal revenue, relatively high-ranking government officials who probably knew the tax code inside and out.

Things began to change during World War II, when Congress passed the Revenue Act of 1942, which forced many more Americans to pay taxes. That’s when the trouble began. As more people paid taxes, more people filled out forms incorrectly. They sought out help at the tax agency, but often found the experience frustrating and impersonal. Then, in 1948, Congress banned the use of the W-2 declaration as a substitute for filling out the dreaded Form 1040. The number of confused taxpayers seeking help shot up more than 50 percent in a single year.

In 1949, the lead tax collector for Massachusetts experimented with herding people into a room and then tried to walk them through the form using a public address system. This method of mass-producing tax returns was not without problems: any questions could bring the rest of the class to a grinding halt.

By the early 1950s, complaints about the IRS spurred President Harry Truman to craft “Reorganization Plan No. 1,” an overhaul of the Bureau of Internal Revenue aimed at making it more modern, efficient and responsive to taxpayers. President Dwight D. Eisenhower implemented the reforms, which sought to decentralize the agency by opening more local offices. He also renamed it the Internal Revenue Service. These reforms, a congressional report later noted, were animated by the then-revolutionary conviction that “taxpayers should be able to receive from the IRS the same level of service expected from the private sector.”

So far, so good. Unfortunately, some IRS employees didn’t get the memo, including Coleman Andrews, the commissioner of internal revenue in 1954. Andrews, apparently tired of Americans taxing the patience of his employees with their stupid questions -- do pet cats count as dependents? -- instructed his bureaucrats to halt their practice of helping citizens fill out tax returns unless the person soliciting assistance was illiterate, did not speak English or could not lift a pencil. Everyone else had to face the dreaded 1040 on their own.

The outcry was immediate. Andrews departed, and his successor, Russell Harrington, reversed the order. “Every taxpayer should be treated with courtesy, patience, and a genuine attitude of helpfulness.” The Washington Post editorial page noted that the “sudden graciousness” of the IRS was more likely a “pragmatic recognition that when it comes to making out income tax returns most taxpayers are illiterates and unable to read the English employed by the Internal Revenue Service.”

But this new concept -- that taxpayers were customers and entitled to the same kind of attentive service found at, say, Macy’s -- quickly ran into problems. For starters, unlike the customers in a department store, taxpayers were a squirrely lot, generally unhappy with making the trek to an IRS office, and rarely happy to hear the news that, yes, they did owe money to the federal government. Many of them, moreover, wanted the IRS to fill out the entire form -- names, birthdates, and so on -- and not just the confusing parts.

A tug of war ensued. The IRS added more agents, but forced people to fill out as much of the forms as possible. Nonetheless, more people showed up in their offices. This spurred the agency to rely on telephone service lines, with the first toll-free service center opened in 1965 (local telephone service centers had been set up in the previous decade).

In the late 1960s, newspapers began calling these phone lines, not to get advice, but to determine whether the advice given was accurate. It wasn’t -- at least not consistently. When the Chicago Daily News presented IRS phone reps with a series of questions, they got incorrect answers 50 percent of the time. Worse, the IRS quickly established a policy that incorrect answers given by their own employees could not be used as an excuse for filling out forms incorrectly. Court rulings affirmed this policy in the 1970s.

This didn’t stop taxpayers from besieging IRS employees with questions. Telephone wait times went up, as did taxpayer tempers. In 1972, IRS Commissioner Johnnie Walters inaugurated yet another wave of reforms aimed at providing better service for the people he called his “customers.” The decade witnessed the introduction of mobile “taxmobiles” that put tax advice on wheels; increasingly comprehensive training for anyone charged with advising the public, and measures aimed at reducing telephone wait times.

The IRS had plenty of room for improvement: studies in the 1970s found that agents routinely handed out bad advice to callers between 10 percent and 25 percent of the time, and that many callers never managed to get any help at all. In 1978 alone, 20 percent of callers hung up while still on hold; by 1984, after President Ronald Reagan had cut the IRS’s budget, the number had shot up to 28 percent. And high error rates continued to plague the agency. Although these problems have ebbed and flowed since then, they have hardly gone away, despite a significant shift of IRS resources in the late 1990s from enforcement to customer service.

Why? That the IRS never quite manages to cure its problems is not the fault of the agency. As the tax code has gotten more complex, the ability of low-level government bureaucrats to answer every taxpayer question -- never mind answer it correctly -- has become increasingly difficult, if not impossible. The IRS can try, but absent reform of the tax code itself, it is fighting a losing battle. And no amount of attention to “customer service” will fix the problem.

Stephen Mihm, an associate history professor at the University of Georgia, is a contributor to Bloomberg View.