IRS in crisis? GOP pressed to increase funds with tax reform on the line

The Internal Revenue Service (IRS) told Congress this week that it needs extra cash to not only carry out its basic administrative duties, but also to implement the GOP’s sweeping tax reform package, opening a door for the agency to potentially start anew with Republicans in the wake of the infamous targeting scandal.

In a letter sent to Congress on Wednesday, National Taxpayer Advocate Nina Olson said that in order to implement the GOP’s tax reform bill, the IRS estimates it will need an additional $495 million over the course of the next two fiscal years in order to update programs, answer taxpayer phone calls, create new forms and train employees.

Funding has been strained throughout recent years for a number of reasons, including the “understandable” fact that more individuals have been filing returns online, Mark W. Everson, former IRS commissioner from 2003-2007 and vice chairman of the AlliantGroup, told FOX Business. However, “reductions have gone well past that,” he said.

Since fiscal-year 2010, IRS funding levels have decreased by about 20%, Olson said, hindering its “ability to perform the basic tasks of administering the tax system.” The agency received $11.2 billion in funds during the last fiscal year, and the Trump administration’s initial budget blueprint for 2018 aimed to cut another $239 million. The fiscal-year 2018 budget has yet to be finalized.

"The fact that the IRS may struggle in the future is no surprise, since Republicans have been cutting their funding for years," Sen. Ben Cardin (D-Md.) told FOX Business. "Underfunding the IRS, especially as our tax code becomes more complex, makes cheating easier, enforcement harder, and delays refunds."

The Tea Party targeting scandal, which drew widespread public attention in 2013 when IRS official Lois Lerner admitted the agency was dissecting conservative groups’ applications for nonprofit status with greater scrutiny, has colored certain perceptions on Capitol Hill. Some Republicans, roiled by the incident, have formed a prickly relationship with the agency, which some believe has not helped the funding situation.

“The targeting mess happened at a time when a whole bunch of Tea Party representatives had just been elected,” Everson said. “It really informed their image of the government and the IRS in a very significant way, in a way that wasn’t positive.”

Now that tax reform is on the line, however, the GOP may be more willing to cooperate where cash is concerned. Olson said that while “shortcuts” have become the norm at the agency, they are inherently incompatible with a “high-quality tax administration.”

“I think that they will get additional funding. And the figure that’s being talked about, half a billion dollars, is relatively modest … that is not a huge number. And given the stakes, the whole country should want this to succeed from an administrative point of view … You want the taxing arm of the government to be successful in implementing the law. I think the Republicans understand this,” Everson said.

On Wednesday, Sen. John Cornyn (R-Texas), the Senate’s second-ranking Republican, hinted at concerns that the agency was unable to do its job with current funding levels.

Beyond funding, staffing is another key issue at the IRS, which has lost about 18,000 full-time positions since 2010, according to The Washington Post. In 2017 alone, 6,801 permanent jobs were lost. Meanwhile, during times of policy change, the IRS looks to beef up its staff to accommodate surges of activity. During the 1986 Reagan-era tax cuts, for example, the agency increased its headcount by 1,300.

The Trump administration has yet to nominate a full-time commissioner since John Koskinen stepped down from the role in November. David Kautter, a top tax policy official at the Treasury Department, is serving as interim IRS commissioner.

But hiring people for executive level positions at the agency could prove difficult, as “the last few years haven’t been kind to the IRS, [which] of course … gets reflected” in people’s career desires, Everson noted.

Still, Everson is hopeful that current events can provide a platform for a positive step forward on behalf of the agency.

“[The IRS has] got an opportunity to get a fresh start ... and they need one,” Everson said.