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March 17, 2021

NTA Blog: Stretched to Its Breaking Point, the IRS Needs Multiyear, Sustained Funding to Efficiently Administer the Tax Laws and Provide Quality Service for Taxpayers

 

 

NTA blog

The IRS continues to suffer from the effects of multiple prior hiring freezes and of a reduced budget over the past decade which has left the IRS unable to hire to the level needed to fully support all IRS operations. In fiscal year (FY) 2019, the IRS had 73,554 full-time equivalent (FTE) positions, which is a decrease of 22 percent from 94,711 FTE positions in FY 2010. Adding to this compounding issue of a reduced work force is the fact that between employees who are eligible to retire, and the average number of employees who leave each year for work elsewhere, the IRS could potentially lose about a third of its current workforce within the year. These are skilled, experienced employees who will take with them years or decades of experience. Even with technological advancements allowing the replacement of manual tasks, the IRS faces an inability to backfill behind these employees as it cannot keep pace with attrition.

These struggles should come as no surprise, as for years we have been raising the impact that reduced staffing and funding have on the IRS. From FYs 2010 to 2019, the IRS’s budget was cut by 20.4 percent (adjusting for inflation), which contributed to a decrease in staffing during that same time period. The increase to the IRS budget for FY 2021, plus the $500 million in funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and $1.85 billion in funding from the American Rescue Plan Act (which is money appropriated for a three-year period specifically for information technology (IT)), are much needed investments in the IRS. However, this funding will not immediately solve the issues that are plaguing the IRS. Hiring and training employees takes time and requires continued funding. Even if the IRS can go out tomorrow and hire 1,000 new employees, it will need to be sure they have level funding for future years to continue to pay those employees. Without an assurance of future funding, the IRS may need to put much of its funding increases towards overtime, which does not assist the agency in tackling the long-term problems associated with staffing shortages.

The IRS is effectively the accounts receivable department for the United States government, playing a key role in the funding of our country’s operations ranging from infrastructure to Social Security, administering various social programs by way of Earned Income Tax Credits and child care tax credits, and this past year was called upon to deliver over one trillion dollars in Economic Impact Payments. In FY 2020, the IRS collected about $3.5 trillion on a budget of about $11.5 billion, producing a remarkable return on investment (ROI) of more than 300-to-1. However, the IRS’s budget does not reflect the critical role the agency plays and, as a result, its shrinking workforce and need to upgrade its IT capabilities continue to hamstring the agency’s work.

The reduction in the IRS’s budget and, ultimately, its staffing not only affects enforcement and the collection of revenue, it also affects the IRS’s ability to provide top-notch customer service. In FY 2020, the IRS received 100.5 million telephone calls but due to budget and staffing constraints, its employees answered only 24 percent of those calls, with hold times averaging 18 minutes. Put differently, IRS employees did not answer more than 75 million telephone calls from taxpayers seeking help in complying with their tax obligations. (The IRS “answered” 23 million calls by routing them for automated responses, while 39 million taxpayers simply hung up.)  Over the years, in-person services at Taxpayer Assistance Centers (TACs) have also been harmed. There were 401 TACs in 2011 and today, only 358 remain across the United States.

The IRS Cannot Effectively Plan and Execute a Long-Term Overhaul Without Sustained, Multiyear Funding

As I have explained in the past, to improve taxpayer service, the IRS needs more resources to hire and maintain employees — the workforce of the future — and more resources to modernize its IT systems. This need is compounded by the IRS’s efforts to meet the requirements set out in the Taxpayer First Act of 2019 (TFA) which aim to improve taxpayers’ customer service experiences when interacting with the IRS. Coupled with budget shortfalls for other IRS needs, failure to fully fund these efforts creates a severe risk to the successful implementation of the TFA and ultimately, the full realization of taxpayer’s rights and taxpayer service.

The National Taxpayer Advocate, former Commissioners and IRS executives, outside organizations, and the IRS have been vocal about its funding challenges for some time. In February 2021, IRS Commissioner Charles P. Rettig testified before the House Committee on Appropriations, explaining that the IRS needs “financial, staff, and training support, and we need to have it in an ongoing manner as long as we’re called upon to do any of these challenges.”

Year-to-Year Fluctuations in IRS Budget Disrupts Enhancement Efforts

The IRS has estimated it will require between $2.3 billion and $2.7 billion in additional funding over the next six years to implement its IT modernization plan, yet in FY 2020, it only received $180 million for Business Systems Modernization (BSM). Significant fluctuations from year to year can disrupt IT contracts and increase the long-term cost of upgrades. Over the last four years, the funding level for the BSM account was:

  • $290 million in FY 2017;
  • $110 million in FY 2018;
  • $150 million in FY 2019; and
  • $180 million in FY 2020.

The IRS cannot effectively plan and execute a long-term overhaul of its systems without having predictability via year-to-year funding. This is why the IRS would benefit from a revamped budget structure.

I have recommended that Congress replace the current IRS budget structure with a new structure that better reflects how the IRS operates, and gives the IRS more flexibility to move funds among its accounts so it can pay for the full costs associated with its programs and initiatives (e.g., the overhead and downstream taxpayer service costs associated with a compliance initiative). However, if Congress ultimately decides to retain the current budget structure, it should ensure the IRS receives balanced funding by taking into account the interactive effects of changing the funding level for one IRS account on other IRS accounts, including the downstream increase in telephone calls and TAS cases that are likely to result from increased enforcement funding.

The IRS Delivered Its Plan to Congress and Now Congress Needs to Provide the IRS Multiyear, Sustained Funding and Oversight

Now is the time for Congress to act. In the TFA, Congress directed the IRS go back to the drawing board and deliver to Congress a new organizational plan, which among other things, prioritizes taxpayer services to ensure that all taxpayers easily and readily receive the assistance that they need and streamlines the agency to minimize the duplication of services and responsibilities. The IRS delivered its plan to address these requirements to Congress in a report in January. The IRS also followed my previous recommendation and created the position of a Chief Taxpayer Experience Officer, with Ken Corbin, the current IRS Wage and Investment Commissioner, at the helm. I look forward to our continued relationship with the Chief Taxpayer Experience Officer towards improving taxpayer experience and providing quality service.

While the strategies included in the TFA Report to Congress will be implemented over a period of years, the IRS does not yet have the sustained, multiyear funding to bring about these proposed significant changes for the agency. The ball is now in Congress’s court because without support from Congress, the IRS’s implementation of the TFA’s provisions will be difficult. Furthermore, if Congress does not act now to provide adequate, multiyear funding, not only will the IRS not be able to overhaul its operations, but rather these staffing shortages and information technology challenges will compound and pose significant threats to the U.S. Treasury and further harm taxpayer services and taxpayer rights, resulting in lower voluntary compliance.

Read the past NTA Blogs

The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.

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