Some members of Congress are pushing to rescind an additional $20 billion of the nearly $80 billion Congress gave the IRS in supplemental modernization funding two years ago. This would be a mistake, because our country’s future depends in part on a fully functioning, successful IRS.
In fiscal year 2023, the agency raised about $5.1 trillion—approximately 95% of the US government’s gross revenue. How can lawmakers fail to respect the importance of the one agency that financially supports everything Congress does for the country? Objectively, it makes no sense. Even if tax legislation creates economic growth, the tax benefits associated with that growth has to get inside the Treasury.
As of June 2024, the IRS spent nearly $7 billion—about 12%—of its supplemental funding, with about $2 billion covering appropriation shortfalls for pay raises, inflationary increases in existing contracts, and other services. Supplemental funds likely will be used for normal operating expenses again in 2025.
Unfortunately, the Inflation Reduction Act, which contained the $80 million in supplemental funding, wasn’t enacted as bipartisan legislation, leaving a political target on the IRS. Some legislators characterize the 2022 law as misplaced funding while others look for quick IRS accomplishments to support preserving the funding. But when done correctly, modernizing a historically underfunded agency is anything but quick.
The IRS maintains two Level 5 computing centers, with 63 separate operating systems and resilient duplication to assure performance. It also has among the world’s largest call centers, processing sites, and collection processing systems, and one of the largest law firms in the US. But the agency hasn’t been able to invest in new, emerging technologies, and instead has spent money repairing existing technologies or building them internally.
The annual costs for operational support and maintenance are about to exceed $1 billion, much of which could be recovered through well-funded agency-wide technological enhancements and related efficiencies.
Safeguarding taxpayer data from the approximately 1.4 billion cyberattacks each year is the agency’s highest priority. Modernization efforts have, so far, enabled the IRS to protect this data and keep pace with the expanding efforts of highly sophisticated cyber-criminals.
IRS enforcement efforts operating on the dark web have disrupted terrorist financing arrangements and child exploitation sites, located assets of sanctioned individuals, and performed the largest financial seizure in the history of our country—the $3.6 billion hack of the Bitfinex crypto exchange. Without the remaining supplemental funding, the ability of the IRS Cyber Crimes Unit to protect the safety and security of our country will be significantly jeopardized.
Important taxpayer data should be protected by best-in-class technologies, designed and acquired without regard to seeking out a possibly compromised tool created and supported by the lowest bidder. Clawing back the supplemental funding would jeopardize the IRS’s ability to continue enhancing much-needed defensive technologies, putting many millions of US taxpayers and others at risk.
Before the 2022 funding boost, most taxpayer interactions with the IRS occurred by phone, by mail, or in person. Providing taxpayers with a modernized, digital private sector experience would take pressure off the fewer than 20,000 customer service representatives to respond to more than 40 million phone calls every year.
The IRS must prioritize efforts to reduce phone calls, paper processes, and other burdens on operations. It must provide meaningful staffing at significant points of in-person taxpayer contacts, including about 400 Taxpayer Assistance Centers throughout the country.
The IRS is on a path to provide an important private-sector experience—the ability to interact almost entirely with taxpayers’ mobile phones, in whatever language is most convenient. The agency has been able to launch more digital tools in the last two years than in the previous 20 years. Further funding reductions would suspend many of these efforts, long before they reach their full potential of providing every American with a best-in-class taxpayer experience.
IRS compliance activities are critical to deter those who would intentionally evade their tax obligations and assure compliant taxpayers that everyone is paying their fair share. The supplemental funding has allowed the IRS to collect more than $1.3 billion from high-income non-filers. Funding reductions would jeopardize ongoing efforts to close the estimated tax gap—taxes due but unpaid.
Although much has been accomplished, IRS enforcement efforts aren’t yet fully able to recover any meaningful portion of the more than $600 billion annual tax gap. Reducing enforcement funding benefits noncompliant taxpayers at the direct expense of compliant taxpayers.
Technological advances funded by the 2022 tax-and-climate law have so far allowed the IRS to improve both case selection and the pace of examinations. IRS data scientists now can identify and pursue issues of noncompliance that wouldn’t have been remotely possible just a few years ago. They have enabled the current IRS enforcement to focus on large corporations, large complex partnerships, and pass-through entities as well as high-income individuals and their closely held entities.
Congress should help the IRS earn Americans’ trust and respect rather than attack it for their own political gain. There should be no further reductions to the supplemental funding designed to modernize the IRS for the benefit of those who are compliant. There must be a significant, multi-year, continued investment in the IRS workforce and its technology.
Congress must support the agency’s ability to modernize, provide meaningful taxpayer experiences, and effectively pursue non-compliant taxpayers coupled with whatever degree of financial accountability and operational transparency Congress desires.
If Congress is committed to further reducing funding, it should be transparent in its reasoning and work closely with the next IRS commissioner in limiting the most significant damage to IRS operations and our country.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Charles Rettig, a shareholder in Chamberlain Hrdlicka’s tax controversy and litigation practice, was IRS commissioner from 2018 to 2022.
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