In the Midst of a Tough Tax Season, a Bipartisan Couple Is Looking to Fix the IRS’s Budget.

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After providing the IRS with its largest budget increase in years, some lawmakers are pursuing new initiatives to provide resources to the troubled agency during a tax filing season marred by lengthy delays and a sizable backlog of unprocessed returns.

Sens. Benjamin L. Cardin, D-Md., and Rob Portman, R-Ohio, are crafting a proposal aimed at modernising the IRS — a rare area of bipartisan agreement on the nation’s tax collectors — that might include dedicated money for the perennially cash-strapped agency. However, Democrats’ other objectives for strengthening the agency are likely contingent on agreeing to a bigger budget reconciliation plan that they can pass without the assistance of the GOP.

“This is obviously progress,” Senate Finance Committee Chairman Ron Wyden, D-Ore., said after the IRS received a 5.6 percent budget increase in the fiscal 2022 omnibus spending bill. “We have a lot of work ahead of us. And we require better technology; we require additional investigators; and we require recruiting authority.”

The current tax season has highlighted the IRS’s partisan division. As the agency faces 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 money.

 

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Republicans overwhelmingly disagree, contending that the agency has failed to maximise the use of existing funds and invest in technological advancements that could help reduce future budget needs. Democrats have argued for a more robust agency to pursue affluent tax evaders, but Republicans have argued against extending the role of tax auditors.

This gap is likely to be highlighted again Thursday when IRS Commissioner Charles P. Rettig testifies before the Ways and Means Oversight Subcommittee. During a February hearing, leading Republican Tom Rice of South Carolina blamed the IRS’s years-long inability to keep up with technological advances, while Democrats also pleaded for increased spending.

 

Unpredictable financial support

Cardin and Portman’s initiatives may provide a way for lawmakers to address the IRS’s difficulties outside the appropriations process, which is constrained by other factors, such as the total amount allocated to nondefense expenditure and the unpredictable timing and outcome.

The duo has collaborated on various bipartisan projects dating all the way back to their time together on the House Ways and Means Committee. They presented a retirement savings plan last year as members of the Senate Finance Committee and co-authored a 2018 IRS reform measure that was not enacted. This bill empowered the government to assist in the recruitment and retention of information technology employees and mandated that the government establish criteria for taxpayer signatures on commercial electronic forms.

Cardin stated that his latest collaboration with Portman would give “more dependable assistance” for the IRS’s modernization efforts, and that staff is actively trying to iron out the details. Portman reaffirmed the effort’s modernising objective.

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

Sen. Michael D. Crapo of Idaho, the Finance Committee’s top Republican, said he couldn’t say if he would support the bipartisan attempt without seeing details, but noted the IRS’s need for IT changes, citing its inability to handle the volume of phone calls it receives.

 

“That is the one area where I would consider what they are doing,” Crapo remarked.

Additionally, Wyden stated that he is receptive to Cardin and Portman’s plan. Sen. Elizabeth Warren, D-Mass., a member of the Finance Committee, applauded the initiative.

“The IRS’s information technology is so far behind where it should be that they are in a really deep hole,” Warren explained. “We need to invest significantly in bringing the IRS into the twenty-first century, and this is not a party issue. We should all have an interest in the IRS operating efficiently and effectively, and I hope we can collaborate with Republicans on this.”

Warren filed legislation last year that would make IRS money necessary or delivered annually regardless of the appropriations process, and more than increase its current budget to $31.5 billion, adjusted for inflation annually. 50% of the amount would be committed to enforcement, while 15% would be devoted to taxpayer benefits.

So far, Warren has garnered only one co-sponsor, California Democrat Alex Padilla. However, stakeholders favour the overall concept.

The Professional Managers Association, a membership organisation for IRS executives, is encouraging Congress to act outside the budget process. Executive Director Chad Hooper stated in a statement following the omnibus’s passing that the agency is held back by Congress’ inability to pass budgets on time. He argued for multiyear budget commitments for IT modernization.

“Only with dedicated monies that are not subject to the regular dysfunctional appropriations cycle will the IRS be able to modernise its key computing databases, which entered their 61st year of continuous operation in January,” Hooper said.

Crapo and a few Democrats cited the current IRS budget as resolving some issues, while the majority did not believe the money boost resolved the matter.

 

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Small Steps

The ongoing fiscal year’s delayed appropriations package included about $12.6 billion for the IRS, a major increase after years of stagnating spending. The Biden administration and Democratic legislative leaders requested a 14% raise, but the final result fell short of their goals.

The largest increases went to taxpayer services and efforts to modernise the IRS, both of which have been prioritised in light of the agency’s inability to answer the majority of calls — among other customer service issues — and the need to manually process paper returns, which has contributed significantly to current backlogs.

The IRS has formed surge teams to reroute workers and is hiring for 5,000 new positions in the coming months, but increased funding comes too late to alleviate all concerns with less than a month remaining in filing season. Bipartisan pressure has been applied on the IRS to use all available powers to ease the 2022 process for taxpayers, including deferring notices and providing other relief.

The budget for taxpayer services increased by 8.7 percent to $2.8 billion in fiscal 2021, while money for modernisation increased by approximately 23% to $275 million. Meanwhile, spending for law enforcement increased by 4.3 percent.

Senate Financial Services Appropriations Subcommittee Chair Chris Van Hollen, D-Md., whose panel funds the IRS, expressed reservations about revisiting the topic for more bipartisan efforts outside the appropriations process. He stated that Democrats sought for additional financing for the IRS beyond what was included in the omnibus, but Republicans objected.

“Clearly, we require a larger one-time investment for their infrastructure, such as their computer systems and technology,” Van Hollen added. “In the same way that we passed an infrastructure bill for our roads and bridges, we need an IRS infrastructure programme.”

However, he cited Democrats’ blocked $2.2 trillion social safety net and climate bill as the vehicle for such an overhaul. This package includes $80 billion in funds aimed at closing the annual “tax gap” between what is owed and what is paid to the government, effectively making it a revenue raiser.

 

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Through fiscal 2031, the latest version of the plan would devote more than $4.7 billion to updating business systems and nearly $3.2 billion to taxpayer services, in addition to enforcement and operations spending, though the money would be used entirely to support tax enforcement efforts.

Chairman of the House Ways and Means Committee Richard E. Neal, D-Mass., emphasised the continued need for enforcement and technology in light of the fiscal 2022 budget increase.

Finances included in the omnibus “will probably carry us through this filing season, but I believe it will require additional funds,” Neal added.

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