WASHINGTON — Congress is damaging the Internal Revenue Service by shortchanging its budget, making it harder for the agency to help taxpayers, detect fraud and bolster revenue collection even as budget deficits surge, a government watchdog said Wednesday.

"The imbalance between its workload and its resources is becoming unmanageable," Nina E. Olson, the national taxpayer advocate, wrote in her annual report on the IRS.

Olson, an independent watchdog within the agency, wrote that agency computers set aside 1.1 million tax returns seeking refunds last year for examination for possible fraud, a 72 percent increase from 2010.

Responding to that and similar problems, the IRS relies increasingly on software to detect bogus returns. But these computer programs make mistakes of their own and limit personal contact the agency has with taxpayers, and one result has been an erosion of the rights of people who have disputes with the IRS, the report said.

"The most serious problems facing U.S. taxpayers is the combination of the IRS's expanding workload and the limited resources available to it," Olson wrote.

Her report came days after the IRS said individuals and companies underpaid their taxes in 2006, the most recent year available, by $385 billion after audits and other enforcement efforts. In recent years, federal deficits have exceeded $1 trillion annually.

The agency collected about $2.3 trillion last year.

Its budget this year is $11.8 billion, $300 million below last year and $1.5 billion less than requested by President Barack Obama.