CONTINUING EDUCATION FOR TAX & FINANCIAL PROFESSIONALS

IRS Funding – To Increase or Not to Increase, That is the Question

SPECIAL GUEST EXPERT:

Director of Public Policy | National Society of Accountants

Had you asked William Shakespeare for insight on the importance of well funding a country’s tax administrator, it is unlikely that he, renowned for both sonnets and alleged tax evasion, would have much cared. And if you had over the years consistently asked members of Congress, the answer would have likely varied. Ask a tax practitioner today, however, and you will almost certainly hear: “Fund the IRS.”

#FundtheIRS

Although not everyone agrees that the IRS needs to be better funded, take one look on “Tax Twitter,” and you will quickly see the call amongst CPEs, EAs, and other tax professionals alike for Congress to increase funding for the IRS – often aptly denoted by the hashtag: #FundtheIRS. And while this resourceful online community may sometimes disagree on specific tax policy positions, it is common consensus that increasing funding for the IRS would solve most of humanity’s problems.

Alright, so that last part is a bit of a stretch, but it is certainly true that many in the tax and accounting community are both frequently and publicly vocal that appropriately funding the IRS would provide:

  • the necessary means for efficient tax administration, and
  • an overall more successful taxpayer and practitioner experience.

Indeed, Congress, regardless of political majority at the time, has reduced the IRS’s budget by approximately 20 percent on an inflation-adjusted basis since fiscal year (FY) 2010, according to the IRS Data Book.  This reduction has resulted in the elimination of 22 percent of IRS staff, and the amount of funding and staff allocated to enforcement activities has decreased by approximately 20 percent since 2010, according to the nonpartisan Congressional Budget Office (CBO). “Multiple government watchdogs over the past few months have issued some version of the same warning: Ten years of IRS funding and staffing cuts continue to hamper customer service and enforcement,” said National Treasury Employees Union President Tony Reardon in a February 11, 2021, News Release.

IRS Appropriations

"Let’s be clear: The IRS is the accounts receivable department of the federal government. In FY 2020, it collected about $3.5 trillion on a budget of about $11.51 billion, producing a remarkable return on investment (ROI) of more than 300:1,” For this reason, it is economically irrational to underfund the IRS."

- National Taxpayer Advocate 2020 Annual Report

The bipartisan Consolidated Appropriations Act, 2021 (CAA), (P.L. 116-260), which provides approximately $11.9 billion in FY 2021 base funding for the IRS, was signed into law on December 27, 2020. This amount of funding for the IRS is 3.5 percent larger than the enacted amount for FY2020 and 1 percent less than the previous administration’s budget request of just over $12 billion in IRS appropriations for FY2021, or $528 million, according to the nonpartisan Congressional Research Service (CRS).

Generally, IRS appropriations have been distributed among four accounts:

  • taxpayer services,
  • enforcement,
  • operations support, and
  • business systems modernization.

For FY 2021, the IRS received $2.5 billion for taxpayer services, $5.2 billion for enforcement, $3.9 billion for operations support, and $223 million for business systems modernization.

IRS is Not Providing Quality Service

Put simply, the IRS is not providing quality service, according to National Taxpayer Advocate (NTA) Erin M. Collins. Notably, the most serious issues encountered by taxpayers are primarily the result of inadequate IRS funding, Collins wrote in the NTA 2020 Annual Report, adding that the lack of funding has led to a staffing shortage and an inability to modernize the IRS’s antiquated information technology (IT) Systems.

The IRS received 100.5 million telephone calls in FY 2020, and its employees only answered 24 percent of those calls, according to Collins.  And although Congress in 2019 passed the bipartisan Taxpayer First Act (TFA) (P.L. 116-25), which aims to significantly reform the IRS for the first time in over 20 years, the IRS ultimately needs more funding to implement the changes.

“The IRS will not be able to make much progress in improving either its taxpayer services or its IT systems with its current funding level and with current restrictions on transferring funds among its accounts,” Collins said.

Nina E. Olson, who served as NTA for nearly 20 years, too, frequently spoke to the severity of the IRS’s antiquated IT systems, but did often divvy some of the blame. “The IRS’s core IT systems are among the oldest in the Federal government, limiting the agency’s capabilities in significant ways. Partly due to historic poor planning and execution and partly due to lack of funding, the IRS has been unable to replace its antiquated systems,” Olson said.

Public Perspective

“A tax system rooted in voluntary compliance requires appropriate levels of customer service and enforcement, both of which depend upon adequate and consistent funding.” - Internal Revenue Service Advisory Council (IRSAC)

- Internal Revenue Service Advisory Council (IRSAC)

The Internal Revenue Service Advisory Council (IRSAC), comprised of over 30 public stakeholders, was established in 1953 as an organized public forum for IRS officials and representatives of the public to discuss various issues in tax administration. Notably, IRSAC frequently spotlights the importance of sufficient IRS funding. Indeed, IRSAC highlighted in its most recent annual report “the need for adequate funding for the IRS over a sustained period in order to effectively staff the agency, provide adequate enforcement of federal tax laws and regulations, and successfully modernize its information technology systems and taxpayer service.”

“In addition to personnel, many of the IRS’s IT systems are retirement eligible. Several of the IRS’s major IT systems are from the Kennedy era, written in programming code that was outdated before the turn of the century,” IRSAC noted in its 2020 Public Report. The IRSAC has recommended that the IRS be provided with at least $14.3 billion annually.

IRS Funding Debate Continues

However, despite the IRS’s mounting responsibilities such as issuing Economic Impact Payments (EIP) and various other administrative and regulatory duties surrounding recent legislative changes including the 2017 tax reform law known as the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) and most recently the CAA and the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), whether the IRS has sufficient resources continues to be a matter of debate on Capitol Hill. In particular, the debate continues among those who hold the ”power of the purse” – members of Congress. Some argue that the IRS needs to better manage its existing funding and employee trainings, also contending that the IRS should be kept on a tight budget to prevent it from continuing to undertake projects that have historically been associated with repeated cost overruns and delays in delivering final products and services, e.g., the business systems modernization, according to the CRS.

Go to the front lines, however, and ask a tax practitioner’s perspective on the issue who cannot get consistent service, or information for that matter, from the IRS’s Practitioner Priority Service line, or those who are currently preparing 2020 tax returns while assisting clients who have received multiple collection notices automatically generated from the IRS because of the agency’s continuous backlog in mail and processing of 2019 returns. The answer, though perhaps multilayered, will be quite clear:

Fund the IRS.

Jessica has an extensive background in analyzing and writing on issues related to federal tax policy and IRS administration. For the last several years, Jessica has regularly attended exclusive legislative briefings, congressional hearings, and markups on Capitol Hill, as well as public hearings at IRS headquarters. Jessica’s legislative and regulatory procedural knowledge, coupled with her tax policy expertise, make her well-versed in the complex worlds of tax policymaking and administration. Before her time with Wolters Kluwer Tax & Accounting (CCH) and Bloomberg BNA before that, Jessica represented taxpayers in a wide range of matters before the IRS.

Currently, Jessica is the director of public policy at the National Society of Accountants (NSA) where she is instrumental in developing NSA’s nonpartisan policy agendas, education, and advocacy efforts. She continues to keep her fingers on the pulse of Congress and meets regularly with IRS officials on behalf of tax and accounting professionals. Jessica leads NSA’s Right to Practice coalition, which include NSA’s Federal Taxation, Regulation Oversight, and Accounting Standards Committees.

Jessica received a J.D., cum laude, from the University of the District of Columbia David A. Clarke School of Law and a B.S. from the University of Maryland, College Park.

 

 

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