IRS Budget Request for FY2024
Senate Committee on Finance
Chairman Wyden, Ranking Member Crapo, and distinguished members of the Committee, I would like to thank you for allowing me to provide comments on the IRS budget request for FY 2024. As President of the National Treasury Employees Union (NTEU), I have the honor of representing over 150,000 federal workers in 34 agencies and departments, including the men and women at the IRS.
Mr. Chairman, NTEU strongly supports the Administration’s FY 2024 budget request of $14.1 billion for the IRS, an increase of more than $1.8 billion above the current level. We are particularly pleased the Administration’s request would provide the IRS with the resources necessary to maintain recent improvements in customer service and continue rebuilding its depleted workforce which is down by more than 15,000 since FY 2010.
Providing quality customer service to the taxpayer is an important part of IRS efforts to help the taxpaying public understand their tax obligations while making it easier to comply. Unfortunately, the IRS’ ability to provide excellent taxpayer service has been severely challenged due to reduced funding in recent years. Without additional resources, recent gains in customer service will be reversed, jeopardizing our voluntary compliance system.
Impact of Funding Reductions on IRS Taxpayer Services
Mr. Chairman, funding reductions in recent years have had a devastating impact on IRS’ ability to provide taxpayers, including victims of identity theft, with the service they need in a timely manner. Since FY 2010, the IRS customer service workforce has shrunk by over 40 percent. In particular, the reduction of Customer Service Representatives (CSRs) and other employees assigned to answer taxpayer inquiries in recent years led to a rapid decline in the phone level of service (LOS). In 2010, there were 21,057 CSRs - eleven years later, the number was down to 15,482. The drastic decline in CSRs resulted in just 21 percent of taxpayer calls being answered during FY 2021, down from 74 percent in FY 2010. In addition, wait times to speak to IRS representatives more than doubled to 21 minutes on average.
In addition, as a result of budget cuts, the IRS was forced to reduce the number of Taxpayer Assistance Centers (TACs) located around the country from 401 to 362, reduce hours of operation, and move to appointment-only. Taxpayers are able to visit the TACs when they have complex tax issues, need to resolve tax problems relating to their tax accounts, have questions about how the tax law applies to their individual income tax returns, or feel more comfortable talking with someone in person.
The importance of providing taxpayers with timely assistance over the phone or in person is of particular importance for victims of identity theft and other types of tax refund fraud. These cases are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years and the process of resolving these cases can be very frustrating for victims.
While the IRS has made considerable progress in this area, additional work remains. Fighting identity theft is an ongoing battle as identity thieves continue to create new ways of stealing personal information and using it for their gain. Therefore, it is critical that the IRS has the resources and staffing necessary to prevent refund fraud from occurring in the first place, investigate identity theft-related crimes when they do occur and help taxpayers who have been victimized by identity thieves as quickly as possible.
That is why NTEU strongly supports the President’s request of $3.4 billion in funding for taxpayer services in FY 2024. This additional funding will enable the IRS to increase overall staffing for taxpayer services by more than 4,700 FTEs, including an additional 3,450 FTEs to improve the telephone level of service to 80 percent for the fiscal year and drastically reduce the correspondence inventory. Mr. Chairman, it is evident that funding reductions in recent years have seriously eroded the IRS’ ability to provide taxpayers with the services they need. Without stable funding, taxpayers will continue to experience a degradation of services, recent progress in providing taxpayers with timely assistance on the phone will be reversed, and correspondence inventories, including letters from victims of identity theft and taxpayers seeking to resolve issues with taxes due or looking to set up payment plans, will increase.
Mr. Chairman, NTEU believes a strong enforcement program that respects taxpayer rights, and minimizes taxpayer burden, plays a critical role in IRS’ efforts to enhance voluntary compliance, combat the rising incidence of identity theft and reduce the tax gap.
Impact on Funding Reduction on Efforts to Reduce the Federal Deficit
Unfortunately, funding reductions in recent years has also undermined the Service’s ability to maximize taxpayer compliance and generate critical revenue that can be used to reduce the federal deficit or pay for critical services.
Since FY 2010 overall enforcement staffing has been reduced by 30 percent, including IRS revenue officers (ROs) and revenue agents (RAs) who are critical to ensuring the integrity of the tax code and reducing the tax gap. According to the IRS the number of RAs who handle complex enforcement cases, fell by 41 percent, while ROs, who manage difficult collections cases, dropped by 52 percent.
The loss of so many highly trained enforcement staff has led to drastic declines in audit coverage for wealthy individuals and large corporations. In particular, the audit rate for millionaires is down roughly 75 percent in the last decade, while audits of corporations with more than $20 billion in assets are down almost 50 percent, which increases the risk to the integrity of the nation’s voluntary tax compliance system.
Sufficient enforcement staffing is also critical if the IRS is to make further progress on closing the tax gap which former Commissioner Rettig believes could total $1 trillion this year, and an estimated $7.5 trillion over the next decade. And as previous IRS Commissioners have repeatedly noted, a simple one-percent decline in the compliance rate translates into $30 billion in lost revenue for the government.
While the tax gap can never be completely eliminated, even an incremental reduction in the amount of unpaid taxes would provide critical resources for the federal government. At a time when Congress is debating painful choices of program cuts and tax increases to address the federal budget deficit, NTEU believes it makes sense to invest in one of the most effective deficit reduction tools: collecting revenue that is owed but hasn’t yet been paid.
That is why NTEU was happy to see the Administration’s budget request would provide an increase of more than $466 million for tax enforcement above the current level, ensuring IRS has the ability to maximize taxpayer compliance and close the tax gap. This includes dedicated funding to hire additional specialized examination personnel that will help facilitate optimal oversight of high income, large corporate, and large partnership tax returns.
Impact of Limiting FY 2024 Funding to FY 2022 Levels
Mr. Chairman, I would be remiss if I did not mention NTEU’s concern with Congressional Republicans’ proposals to cap overall FY 2024 discretionary funding at the FY 2022 enacted level. Such a plan would force the IRS to divert funding provided in the IRA to simply maintain current levels of operation and would undermine its’ ability to meet its long-term plans to improve customer service, modernize its aging technology and building up its enforcement capacity.
In particular, the IRS has warned that if it does not receive funding for FY 2024 at the level requested by the President, it will be forced to use 100 percent of IRA taxpayer service funds to ensure it is able to provide acceptable levels of phone and walk-in assistance, and that these funds would be fully exhausted in less than four years.
Failing to fund the IRS at the FY 2024 requested level would also prevent IRS from meeting its long-term IT modernization project goals. Funding for BSM was zeroed out in the FY 2023 Consolidated Appropriations Act, and because current funding for operations support is insufficient to cover normal IT operations costs, the IRS would be forced to delay or withdraw approximately one-third of the planned modernization.
The Inflation Reduction Act of 2022
Last August Congress approved the Inflation Reduction Act (IRA) of 2022 which included more than $79 billion in funding over the next decade for the IRS to improve taxpayer services, modernize its outdated technological infrastructure, and restore IRS’ capacity to ensure tax compliance among high-income individuals, complex partnerships, and large corporations.
Taxpayers are already seeing the benefits of this historic investment in the form of improved service during the current filing season. With funding provided by the IRA, the IRS was able to hire an additional 5,000 CSRs to answer taxpayer calls and process correspondence in advance of the filing season. These additional hires have helped IRS achieve a live assistance level of service of 87 percent, up from around 15 percent during the previous filing season, while the wait time to speak to an IRS employee has been reduced to about four minutes, compared with 27 minutes a year ago.
The IRS plans to hire another 5,300 CSRs by the end of 2023, and coupled with funding requested for FY 2024, the IRS projects it will achieve an 85 percent level of service for the current filing season, and an 80 percent level of service for FY 2024.
Funding from the IRA has also allowed the IRS to reopen more Taxpayer Assistance Centers (TACs) around the country where taxpayers can meet face-to-face with an agency professional to get answers to their questions. As of early April, 335 of the IRS 362 TACs were open, with 27 closed or unstaffed. That compares with August 2022, when the IRS had 317 TACs open out of a total of 359, with 42 closed or unstaffed.
Prior to passage of the IRA, the IRS lacked the resources to modernize its outdated IT infrastructure hampering efforts to better service taxpayers in this digital age. This inability to plan for stable IT funding led to a “start and stop approach” to modernization that did not allow for sustained progress. But with funding provided in the IRA, the IRS will finally be able to advance significant technology modernization initiatives that directly benefit taxpayers. These initiatives will greatly improve the taxpayer experience and include more options for digital communications, secure document exchange, expanded payment options, digital signature authorizations and an automated callback program, all of which will allow our customer service staff to provide more comprehensive service to taxpayers.
NTEU strongly supports the Strategic Operating Plan released by the IRS proposes to use the IRA funding to rebuild and modernize the agency by providing the necessary staffing to deliver services to taxpayers, technology to make compliance with the tax laws easier and expand enforcement efforts for large corporations and partnerships and for high wealth individuals with complex returns. The plan recognizes that as our nation grows and the tax system is increasingly complex the IRS requires appropriate funding, staffing and technology to meet its mission.
NTEU strongly supported the influx of funding provided by the IRA and encourages Congress to continue providing proper annual appropriations. As the IRS notes, its employees are its greatest asset, and the plan rightly focuses on the importance of a workforce that has the tools and resources it needs to deliver for American taxpayers. That includes increased staffing, proper training, modern technology, and systems.