How should the IRS spend $80 billion in new funds?
As part of the 2022 Inflation Reduction Act, the Internal Revenue Service was allocated an additional $80 billion over the next 10 years. The act provided no roadmap to spend this money.
Earlier this month, I sat in on a webcast by Tax Analysts, a well-known group out of Washington, D.C. The webcast’s purpose was to discuss how the new funding would be used.
There were three speakers: Charles Rettig, the immediate past commissioner of the IRS; Nina Olson, former National Taxpayer Advocate and current executive director of the Center for Taxpayer Rights; and former IRS Chief Counsel Michael Desmond.
The moderator referred to the panel as “star-studded” and it was. The three individuals each have considerable experience with IRS administration and have differing views.
The IRS has lost significant funding and personnel since 2010. The new funds may allow it to hire 87,000 new employees over the next 10 years. With planned retirements this may allow IRS to return to 2010 staffing levels.
Some politicians have warned about IRS agents showing up at your door with guns. The current state of IRS is not agents coming to you in some offensive way.
The current state is taxpayers trying to contact the IRS and not being able to do so. New funding makes it more likely they will answer your call than come to your door.
I have weighed in on IRS funding before, so I intend to shut up and just present the expert views of the panelists.
Rettig said that IRS has 360 service centers. Lack of funding has led approximately 30 to 40 of these centers to have no personnel. Many others have only one person.
The new funding should allow the IRS to have at least three people at every center (this is a goal). That will go a long way to improving customer service at the “retail” level.
Rettig reminded everyone this is a 10-year funding plan. Early efforts should focus most on customer service and IT improvements.
Olson noted that from 1986 to 2021, IRS revenues from tax enforcement activities were constant when adjusted for inflation. Only 2% of all revenues come from enforcement activities.
Olson concluded that the objective of new funding has to be to increase voluntary compliance. It will never be possible to raise enforcement revenues much above 2% of the total.
Customer service is an important part of increasing voluntary compliance. This service must be at the retail level, requiring IRS personnel across the country.
Olson also said that she learned that people in different parts of the country look at taxes differently. Local agents understand the locals better. They also live and serve in that community. That makes them less threatening.
Olson was the National Taxpayer Advocate when the IRS Restructuring Act was passed with bipartisan support in both houses of Congress. That act had a clear purpose spelled out in committee reports.
The more recent act was not bipartisan and has no documented legislative history. There is no stated purpose for the funding and, most importantly, no bipartisan purpose.
Olson believes that it is essential to have national discussions of many interested parties to identify the best way to spend this new money over the 10-year period.
Former Chief Counsel Desmond noted that very few taxpayers have ambiguous tax issues that they want to debate with the IRS. Most just want to get their return right.
Greater retail service, and improved IT resources, can help taxpayers get their returns right when filed. If there is an error, both will help resolve the issue quickly.
Rettig said that there are 8,700 IRS revenue agents but only 6,500 devoted to enforcement. The others have been reassigned to other IRS responsibilities even though they kept their job titles.
The tax law is becoming increasingly complex with a growing enforcement gap. More revenue agents with better training are needed to deal with those who want to debate the IRS.
The regular people who Desmond said just want to get their return right just need someone to talk to. Olson’s approach of a bipartisan plan to use the resources may get us to friendly discourse.