Congress should allocate a higher proportion of IRS funding towards taxpayer services and modernizing outdated internal systems and place less of an emphasis on enforcement, the National Taxpayer Advocate urged.
“For at least the past several decades, the IRS has been chronically underfunded, rendering it unable to deploy current technology or hire sufficient staff to meet taxpayer needs,” wrote Erin Collins in a March 16 blog post. “And then between 2010 and 2020, funding for the IRS was reduced on an inflation-adjusted basis by nearly 20 percent.”
Calling the $80 billion supplemental funding authorized to the IRS from the Inflation Reduction Act (PL 117-169) “appreciated and welcomed,” Collins pointed out that of the total appropriation, taxpayer services ($3.2 billion) and the Business Systems Modernization (BSM) account ($4.8 billion) comprise only 10%, with over half going towards enforcement ($45.6 billion) and the remaining $25.3 billion dedicated to operations support.
Arguing that Congress, in its annual appropriations for the IRS, currently funds enforcement twice as much as taxpayer services, Collins said that promoting voluntary compliance by assisting taxpayers should be considered alongside enforcement in reducing the “tax gap,” which averaged $470 million from the period 2017-2019.
“The most efficient way to improve compliance is by encouraging and helping taxpayers to do the right thing on the front end,” read Thursday’s blog. “That is much cheaper and more effective than trying to audit our way out of the tax gap one taxpayer at a time on the back end.”
Collins used the COVID-19 pandemic as a prime example as to why more should be allocated to customer service, citing refund delays, lapses in communications from the IRS, and long resolution times for identity theft victims. While the IRS has recently been optimistic about increasing customer support phone line response rates and reduced wait times, Collins does not want Congress to forget when representatives answered just 11-13% during the pandemic.
As for the IRS’ “technological deficiencies,” with some systems from the 1960s still in use to this day, Collins illustrated how improvements would curb paper return processing times and streamline recordkeeping of taxpayer information. “IRS divisions still use about 60 different case management systems that generally don’t communicate with each other,” she added. “When a taxpayer calls with an account question, the taxpayer often needs to be transferred, sometimes more than once, to a unit that can access the system on which the relevant information resides.”
Collins presented four options for her proposed shift in resources:
- Legislation that would revise the Inflation Reduction Act to bolster taxpayer services and BSM
- Use the annual budget appropriation process to move enforcement funds
- Allow the IRS to transfer funds between accounts
- Broaden the scope of IRS activities under the enforcement account to include, for example, Taxpayer Advocate Service casework
“I am not a budget expert and am indifferent as to how the funding gets reallocated,” Collins concluded. “As the National Taxpayer Advocate, my goal is simply to ensure that taxpayer needs are met[.]”
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