Is the IRS such a mess that the nation’s system of voluntary tax compliance is at risk? Will frustrated taxpayers rebel because they can’t get help with a revenue code they can’t understand? Will aggressive taxpayers who recognize that audit rates have plummeted to the lowest levels in years further push the tax-avoidance envelope?  And will a massive increase in new-style tax fraud, perpetrated by hackers and identity thieves rather than traditional tax cheats, crash the filing system? We may be about to find out in what’s becoming an increasingly toxic environment for tax administration. Congress gives the beleaguered tax collection agency more and more to do while cutting its budget over and over again. Commissioner John Koskinen, an old Washington hand and a corporate turn-around artist, is responding aggressively—most recently yesterday at a Tax Policy Center forum on how the IRS is responding to those budget cuts. Koskinen pulled no punches. The spending reductions mean that, after adjusting for inflation, the agency is working with the same budget it had in 1998. The result, he said: “We’re coming to the point where the significant reductions in the IRS budget will degrade the agency’s ability to continue to deliver on its mission.” And, he added, “People need to understand the IRS is going to have to do less with less.” In practical terms those budget cuts are already resulting in fewer audits and collections, and a dramatic reduction in tax-season assistance. At the forum, National Taxpayer Advocate Nina Olson reported that the agency’s system of telephone help has crumbled. “I’ve been practicing for four decades and I’ve never seen anything like this filing season on the phones,” she said. Six of every 10 people who call the agency never get through to a staffer at all. The IRS has hung up on 6.8 million calls (called in the best Orwellian fashion a “courtesy disconnect”) because lines are overwhelmed. Even those who do get through sit on hold an average of 22 minutes when they call with a question about their 1040. And time-constrained staffers have been instructed to not provide specific advice when taxpayers do get them on the phone even if they know the answers to questions. At the same time, the cash-strapped agency is losing auditors as many of its most experienced compliance staffers retire. Not surprisingly, audit rates are plummeting. For example, the agency audited less than one percent of partnerships in 2013. Koskinen says one solution to this is more money but acknowledges that it is futile to expect a return to past funding levels. So he has in mind better management and a total redesign of the way the agency deals with taxpayers. His idea: A system where each taxpayer has a secure online IRS account where she can get information, make routine changes in personal information, file returns and make payments, and respond to questions from IRS staff. It all sounds sensible but getting from here to there will not be easy. Other panelists at yesterday’s forum, including Olson; IRS Director of Research, Analysis, and Statistics Rosemary Marcuss;  and Intuit’s Chief Tax Officer David Williams described some of the challenges. While the IRS won’t say how much such a transition will cost, it will be enormously expensive and take years to implement. The security challenges are frightening—oddly, taxpayers may be secure from hackers today because the IRS is so far behind the techno-curve that it only corresponds with taxpayers by snail mail and because many of its systems are so old that bad guys don’t know the code. And the agency will still have to find ways to communicate with low-income taxpayers who may be unable to access this online system. The IRS is not without blame for its current  problems. It is often insular, tone-deaf, and inflexible. And, as Olson says, because it is so powerful it can easily intimidate taxpayers. But it needs help if it is going to change. As long as lawmakers continue to use the IRS as a political piñata that symbolizes all of their grievances against big government, the Affordable Care Act, high tax rates, and low-income households who pay no income taxes, there will be no funding for new agency initiatives, no improvements in taxpayer services, and no better compliance process. The fix will take a powerful cultural change from both the IRS and the political class. Until that happens, the voluntary compliance system will be at risk.