Amid a Trying Tax Season, a Bipartisan Couple Considers Resolving the IRS’s Fiscal Crisis.

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WASHINGTON  After providing the IRS with its largest budget increase in years, some lawmakers are turning to new initiatives to provide resources to the troubled agency in the midst of a tax filing season beset by lengthy delays and a large backlog of unprocessed returns.

Senators Benjamin L. Cardin (D-MD) and Rob Portman (R-OH) are putting together a proposal aimed at modernising the IRS — a rare area of bipartisan consensus when it comes to the nation’s tax collectors — that might include dedicated money for the perpetually cash-strapped agency. Democrats’ other aspirations for boosting the agency, though, are likely to be contingent on agreeing to a bigger budget reconciliation plan that they can pass without Republican backing.

“This is… certainly moving in the right direction,” said Senate Finance Committee Chairman Ron Wyden, D-Ore., after the IRS received a 5.6 percent budget increase in the fiscal 2022 omnibus spending bill. “We have a lot of work to do.” And we require new technology, more investigators, and recruiting authority.”

 

IRS

The current tax season has highlighted the partisan division within the IRS. As the agency works to clear a backlog of millions of unprocessed tax returns and correspondence with taxpayers, Democrats on both sides of Pennsylvania Avenue, as well as the taxpayer advocate’s office, an independent watchdog within the agency, have advocated for increased funding as a remedy.

Republicans, for the most part, disagree, claiming that the agency has failed to employ existing monies and make technical advances that could reduce future budget needs. Democrats have asked for a more resourced agency to go after rich tax evaders, but Republicans have criticised the idea of increasing the number of tax auditors.

The IRS Commissioner Charles P. Rettig is scheduled to speak before the Ways and Means Oversight Subcommittee on Thursday. During a February hearing, ranking Republican Tom Rice of South Carolina blamed the problem on the IRS’s years-long failure to keep up with technology, while Democrats called for more spending as well.

Uncertain funding

Mr. Cardin and Mr. Portman’s initiatives may provide a way for lawmakers to address IRS issues outside of the appropriations process, which confronts other limits such as the amount allocated to nondefense expenditure as a whole, as well as unpredictable time and results.

Since serving on the House Ways and Means Committee together several years ago, the duo has collaborated on a number of bipartisan projects. As members of the Senate Finance Committee, they presented a retirement savings plan last year and co-authored a 2018 IRS reform bill that was never considered. This provision includes authority to assist in the recruitment and retention of information technology employees, as well as a need that the government establish criteria for taxpayer signatures on commercial electronic forms.

Mr. Cardin stated that his most recent effort with Mr. Portman would provide “more reliable assistance” to modernise the IRS, and that staff is hard at work filling in the details. Portman confirmed the initiative and its emphasis on modernization.

The IRS’s technological issues range from antiquated computer systems and internet tools to the requirement for a chain of people to manually process paper submissions.

Sen. Michael D. Crapo of Idaho, the Finance Committee’s top Republican, said he couldn’t say whether he’d back the bipartisan attempt without seeing more information, but said there’s a need for IT changes at the IRS, citing its inability to handle the volume of phone calls it receives.

“That’s the one exception… “I’d be willing to look into what they’re doing,” Mr. Crapo stated.

Mr. Wyden also stated that he is willing to consider Mr. Cardin and Mr. Portman’s plan. Sen. Elizabeth Warren, D-Mass., a member of the Finance Committee, praised the effort.

“The IRS’s IT is so far behind where it needs to be that they have a really deep hole to dig themselves out of,” Ms. Warren explained. “We need to make big investments to bring the IRS into the twenty-first century, and this should not be partisan.” We should all be interested in the IRS’s efficient and successful operation, so I hope we can work with Republicans on this.”

Ms. Warren filed legislation last year that would make IRS financing mandatory, or delivered each year independently of the appropriations process, and more than quadruple its current budget to $31.5 billion, adjusted for inflation on an annual basis. 50 percent of that amount would be dedicated to enforcement and 15 percent to taxpayer services.

So yet, Ms. Warren has only one co-sponsor: California Democrat Alex Padilla. Stakeholders, though, embrace the overall concept.

The Professional Managers Association, a membership organisation for IRS executives, is encouraging Congress to act outside of the budgetary process. In a statement following the omnibus’ passage, Executive Director Chad Hooper stated that the agency is hampered by Congress’ inability to pass budgets on time. He advocated for multiyear budget commitments for IT modernization.

 

IRS

 

“Only with dedicated monies that the IRS can rely on outside of the regular dysfunctional appropriations cycle will the IRS be able to finally modernise its key computing databases, which entered their 61st year of continuous operation in January,” Mr. Hooper said.

Small steps

The postponed appropriations package for the current fiscal year included about $12.6 billion for the IRS, a major increase after years of stagnating spending. Despite the fact that the Biden administration and legislative Democrats recommended a 14 percent price increase, the actual result fell short of their expectations.

The largest increases went to taxpayer services and efforts to modernise the IRS, both of which have been prioritised given that the agency has been unable to answer most calls — among other customer service issues — and that the need to manually process paper returns has been a major cause of current backlogs.

The IRS has formed surge teams to reassign personnel and is hiring to replace 5,000 positions in the coming months, but increased funding arrives too late to alleviate all problems with barely a month left in the filing season. Bipartisan pressure has been applied to the IRS to use all of its tools to make the 2022 process easier for taxpayers, including deferring notices and other assistance.

From fiscal 2021 to fiscal 2022, the budget for taxpayer services increased by 8.7 percent to $2.8 billion, while money for modernization increased by around 23 percent to $275 million. In the meantime, law enforcement funding increased by 4.3 percent.

Chris Van Hollen, D-Md., chair of the Senate Financial Services Appropriations Subcommittee, whose panel pays the IRS, was cautious of returning to the matter for more bipartisan efforts outside of the appropriations process. He claimed that Democrats pushed for greater IRS funding than was included in the omnibus bill, but Republicans refused.

“Clearly, we need more of a one-time major investment for their infrastructure, such as computer systems and technology,” Van Hollen added. “We need an IRS infrastructure programme, much like we did with our infrastructure bill for, you know, roads and bridges.”

He did, however, point the Democrats’ blocked $2.2 trillion social safety net and climate package as the forum for such a reform. That package includes $80 billion in financing intended at closing the “tax gap” between what the government owes and what it collects each year, making it a revenue raiser in the law.

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The most recent version of the plan would give more than $4.7 billion to updating business systems and nearly $3.2 billion to taxpayer services, in addition to enforcement and operations spending, through fiscal 2031, though all of the money would be used to support tax enforcement efforts.

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