National Taxpayer Advocate Nina E. Olson warns that budget cuts in recent years have significantly reduced the ability of the IRS to explain and enforce the tax code, a situation likely to result in greater confusion over the tax overhaul that Congress approved last month.
“Funding cuts have rendered the IRS unable to provide acceptable levels of taxpayer service, unable to upgrade its technology to improve its efficiency and effectiveness, and unable to maintain compliance programs that both promote compliance and protect taxpayer rights,” Olson says in her latest annual report to Congress.
All of this naturally frustrates individual taxpayers and business leaders. In addition, however, reduced compliance with the tax code can cut into government revenue and thus result in a larger federal deficits. So better IRS funding could help put the federal budget on a more sustainable path.
Olson’s report presents an alarming picture of the IRS that predates the new tax law: “ ‘Shortcuts’ have become the norm, and ‘shortcuts’ are incompatible with high-quality tax administration. There is no doubt that the IRS needs more funding.”
Republicans in Washington have long ignored such warnings, backing IRS cuts even as they lamented the deteriorating service to taxpayers. Trump’s proposed budget for the current fiscal year called for $10.975 billion in IRS funding, a $260 million cut from the previous year.
As the result of the new tax law, however, the Trump administration has changed course. Treasury Secretary Steven Mnuchin said last week that he was talking with lawmakers about an increase in IRS funding. He also said the administration “would expect that we would hire a significant number of people to help with the implementation” of the new tax law.
The IRS estimates that it will need $495 million in Fiscal Years 2018 and 2019 to implement the new law, according to Olson’s report. This would cover such things as new training, new computer programs, answering taxpayer questions and the development of new forms and publications.
For political reasons, however, the administration is pressing businesses to quickly reduce tax withholding in paychecks. Rushing this process could result in under-withholding problems later for many employees. This is already putting great pressure on the IRS — long before it can expect additional funding — to provide accurate, effective guidance on the new law.
While Olson argues for better funding, she also criticizes the IRS for failing to pursue some improvements that would cost little or nothing. She says lack of resources at the IRS “often has become a reflexive excuse for not doing something, or worse, for doing things ‘to save resources’ that harm taxpayers, foster noncompliance, and undermine taxpayer and employee morale.”
She is critical of the IRS, for example, for what she considers an excessive focus on the use of online accounts that many taxpayers are unable to set up, often because they have no broadband access.
In previous annual reports to Congress, Olson — who runs an independent organization within the IRS — has sounded similar themes about the need for additional funding as well as some changes in how the IRS operates. In the latest report, however, there is a greater sense of urgency and alarm.
The IRS, she says, “cannot answer the phone calls it currently receives, must less the phone calls it can expect to receive in light of tax reform, without adequate funding. . . . With only about 400 employees available for direct outreach and education to taxpayers, it is questionable whether the IRS can effectively assist taxpayers in understanding their obligations under the new tax law.”
Congress and the Trump administration should delay no longer in determining how much additional funding the IRS requires to do its job right — and providing that money as quickly as possible.