To effectively meet its core responsibilities, the IRS needs sustained annual appropriations and access to expected funds authorized by the Inflation Reduction Act (P.L. 117-169), the American Bar Association (ABA) Tax Section told top congressional budget writers.
On December 13, Tax Section Chair Alice Abreu reiterated the Section’s support for the IRS to receive “appropriate and adequate funding” for fiscal year 2025 and moving forward.
The ABA sent Abreu’s comments in a letter to Senate Financial Services and General Government Subcommittee Chair Chris Van Hollen (D-MD) and Ranking Member Bill Hagerty (R-TN), as well as the party leaders in the subcommittee’s House counterpart: Chairman David Joyce (R-OH) and Ranking Member Steny Hoyer (D-MD). Financial Services and General Government is part of the Appropriations Committee in both chambers.
A noticeable difference.
Abreu asked the budgeteers to consider recent wins the agency has notched in the areas of taxpayer service and compliance enforcement recently as Congress makes another last-minute push ahead of a government funding deadline. The most recent Continuing Resolution in a series of temporary funding measures expires December 20.
ABA members, according to Abreu, have noticed overall faster turnaround times at the IRS. For example, the IRS is releasing key guidance on “uncertain provisions” of the Tax Code at a greater clip. The IRS is also cutting down response times regarding “pre-filing ruling requests to resolution of litigation” and other inquiries from taxpayers and practitioners, she added. Similarly, the agency is processing returns and refunds more quickly, and speeding up audit closures.
The Tax Section chair cited the Treasury Inspector General for Tax Administration’s (TIGTA) Interim Report on the 2024 Filing Season , which showed improvements to certain customer service metrics like the Level of Service (LOS) figure that represents phone line answer rates and average wait times.
TIGTA’s report, along with a preliminary report on this past tax season by the Taxpayer Advocate Service, also show increases to the number of taxpayers serviced at in-person Taxpayer Assistance Centers. Both agencies noted the rollout of several new digital tools and other online features, such as the ability for taxpayers to submit responses to IRS notices, which cuts down the lag time in correspondence attributable to mail delays.
The letter argued that “improvements in e-filing and automated return processing systems facilitate the avoidance of countless submission and transcription errors annually, avoiding the need for any interaction with the IRS to resolve these errors.” Abreu continued in saying it is “more important than ever” that the IRS possess the resources necessary to administer “economic incentives to tens of millions of individual taxpayers and businesses.”
Defensive game.
The Treasury Department and the IRS make sure to credit the Inflation Reduction Act funding in public remarks and official releases since the bill’s enactment as a way to demonstrate to the public and skeptics on Capitol Hill that it is yielding a positive return on investment.
Last week, the agency provided a quarterly update to its Strategic Operating Plan (IR 2024-310). So far, enforcement initiatives have netted $4.7 billion. Wealthy individuals, large corporations, and partnerships who do not file taxes, underreport earnings, or use identified tax schemes to reduce their liabilities are the focus of these initiatives, the Biden administration has maintained, and not those making $400,000 or less per year.
The IRS also announced its latest enforcement campaign addressing deferred legal fees; whistleblower rewards for those who give tips to the IRS on offshore tax evasion; and the proper use of Form 8275, Disclosure Statement (FS 2024-32).
But roughly $22 billion rescinded or reallocated from the original $80 billion appropriation to the IRS from the Inflation Reduction Act all came from the enforcement bucket.
IRA redeployment.
As the IRS mentioned in its fiscal year 2025 budget request, the law “does not provide flexibility to realign the IRA funds across appropriations.”
The IRS asked for $12.3 billion in annual appropriations for fiscal year 2025, which equals the fiscal year 2023 enacted level. However, with “no anticipated discretionary increases for inflationary requirements,” the agency warned it will be forced to rely heavily on the Inflation Reduction Act funds to keep pace with its modernization objectives and usual operations.
Without adequate annual funding or additional spending flexibility, the IRS expects it will deplete the funding before the fiscal year 2031 expiration date, starting with the taxpayer service resources, which would “run out completely” in fiscal year 2026 since they only account for 4% of the total appropriation, as the ABA letter noted.
Consequently, the LOS metric would suffer a “drastic decline,” meaning “the vast majority of taxpayers would be unable to reach an IRS representative for assistance, including delays in return processing and answering correspondence.”
The Tax Section agreed with the idea of Congress allowing the IRS “increased flexibility” instead of simply clawing back more enforcement funds. Shifting more towards service would “assist millions of individuals and businesses in filing correct tax returns in the first instance, avoiding the need for enforcement entirely,” the ABA proposed.
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