Washington, D.C. – The Internal Revenue Service will need about $495 million in fiscal years 2018 and 2019 to implement the new tax reform law, according to a report released Wednesday by the National Taxpayer Advocate.
The preliminary two-year cost estimate, developed by the IRS itself, is for the increased workload as the agency handles the largest overhaul to the tax code in 30 years at the same time it starts the regular 2018 filing season.
“This new report by the IRS’ own independent watchdog details the real-world implications of slashing funding at the IRS and the picture it paints is not pretty,” said Tony Reardon, National President of the National Treasury Employees Union (NTEU). “You can’t expect the same level of service after losing $900 million and 21,000 full-time employees in seven years.”
National Taxpayer Advocate Nina Olson provides a 600-page analysis of all of the issues facing the IRS, but she reaches some stark conclusions about funding that echo arguments NTEU has also been making on Capitol Hill.
“Funding cuts have rendered the IRS unable to improve its efficiency and effectiveness, and unable to maintain compliance programs that both promote compliance and protect taxpayer rights,” Olson wrote. “’Shortcuts’ have become the norm, and ‘shortcuts’ are incompatible with high-quality tax administration. There is no doubt that the IRS needs more funding.”
Specifically on tax reform, the Taxpayer Advocate reports that after the last major rewrite of the tax code in 1986, the agency changed 162 existing forms, developed 48 new forms and created 13 new publications. Call volume increased by 14 percent and the agency added 1,300 staff to increase their ability to answer questions from taxpayers and business owners.
To accommodate the newest changes, computer programming needs updating, regulations need revising, employees need training, and the agency needs to develop the capacity to verify that taxpayers are in compliance with the law’s changes.
“Right now, the IRS is struggling to carry out its basic functions,” Reardon said. “Without additional resources and personnel, the impact on taxpayer services and compliance will be immediate and damaging to the effective administration of the nation’s tax laws.”
Since the 2017 tax law was signed in December, Congress is still considering appropriations bills that would cut the IRS budget by more than $100 million.
As an example of how tax reform increases the workload, Olson cites the reduced mortgage amount that is eligible for the interest deduction. The new law states that the change applies to loans closed after Dec. 15, 2017, but also allows for some exceptions. Since the IRS currently does not know the dates that mortgages close, the terms of a refinancing or the details of the purchase contracts, brand new guidance has to be developed so that the IRS can determine which loans are subject to the new, lower cap and which are not.
“The National Taxpayer Advocate, just like IRS employees, is laser-focused on making sure the agency delivers a smooth filing season under existing tax rates, ample customer service and effective implementation of the new tax law,” Reardon said. “Her report should sound the alarm on Capitol Hill about the need for an IRS budget that doesn’t starve the agency and shrink the workforce, just when taxpayers, employers and businesses need their guidance the most.”
NTEU represents 150,000 employees at 32 federal agencies and departments.