From Daily Tax Report®
December 29, 2017
The Republican euphoria in the aftermath of passing a tax reform bill will soon be replaced with the need to adequately support the IRS as it goes about putting the new law into place.
The Internal Revenue Service will need to update its computer systems, rebuild its workforce, and do a significant amount of training to enforce the bill signed into law Dec. 22 by President Donald Trump, former top agency staffers said. The new law ( Pub. L. No. 115-97) sets the corporate tax rate at 21 percent, a deduction for pass-through businesses at 20 percent, and a top individual rate of 37 percent—and makes scores of other changes that will require new guidance from the agency.
Lawrence B. Gibbs, a former IRS commissioner, told Bloomberg Tax that unless the agency gets additional funding, it won’t be able to “mount a sufficient compliance effort to make sure folks obey their tax obligations under this new law.”
If funding is increased, that would mean a change from recent years, when Republicans in Congress have repeatedly voted to slash the IRS budget. Some conversations about the agency’s needs have already begun, and they are expected to speed up once Congress returns in 2018. Top tax writers so far haven’t tipped their hand on what they might ask for.
The IRS and the Treasury Department didn’t respond to emailed requests about increased funding for the agency.
A Bloomberg Tax examination found that since 1980, the agency’s operating costs steadily increased from more than $2 billion— about $6.6 billion in 2017 dollars—to $13.47 billion in 2010 after factoring for inflation. The costs fell about 15 percent from 2010 to 2015 as funding for the agency declined.
In 1986—the year Congress rewrote the tax code—inflation-adjusted operating costs for the IRS were $8.3 billion. Operating costs rose to $9.1 billion in 1987 and to $10.07 billion in 1988.
The IRS currently has about 10,000 fewer positions than it did in 1980. In 1992, the IRS had an average of 116,673 full time positions, representing peak employment since 1980. Employment numbers have mostly decreased since then. In 2015, the IRS had an average of 79,890 full-time positions.
The Senate Appropriations Committee has proposed $11.1 billion for the IRS in fiscal year 2018, a number similar to a House-passed bill. That is about $120 million less than the funding level in FY 2016.
Top lawmakers aren’t necessarily opposed to increasing funding for the agency.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) said he is looking into what resources the IRS already has and what it needs. Brady said when requesting more funding “under a new acting commissioner, if they can make that case in conjunction with Treasury, we will listen to it.”
That doesn’t mean Congress is ready to open up the pocketbook, Brady said.
Rep. Vern Buchanan (R-Fla.), chairman of the Ways and Means Subcommittee on Oversight, which has jurisdiction over the IRS, said he is open to the idea.
“I think all that needs to be looked at. I’m open-minded,” he said. Buchanan said he wants to work with the IRS to make sure challenges are addressed quickly. Buchanan has previously met with former IRS Commissioner John Koskinen and National Taxpayer Advocate Nina Olson to talk about challenges the agency faces in enforcing tax laws.
Brady, Buchanan, and other tax writers plan to roll out their ideas for restructuring the IRS in the coming months—essentially a coda to the tax reform bill that Republicans worked on in 2017. Brady has previously floated the idea of removing or significantly scaling back the agency’s enforcement powers.
The IRS is facing more work with fewer people, and that’s going to be a challenge, said Hap Shashy, a former chief counsel for the agency. He is now a tax partner at King and Spalding LLP.
There is talk among some Republicans like Buchanan about addressing challenges quickly.
Shashy said when he became IRS chief counsel in 1990 a lot of regulations stemming from the 1986 rewrite of the tax code had been dealt with—but not everything. “I think the lesson everyone learned is that the sooner, the better. The sooner you can get guidance out there for both IRS agents on one hand and taxpayers on the other, the better,” he said.
The IRS budget needs to be increased and it is very much in the interest of the administration and Congress to do so, said Mark W. Everson, a former IRS commissioner. Congress will need to constantly monitor the new law’s implementation and make fixes along the way, said Everson, vice chairman at AlliantGroup LP.
Gibbs, senior counsel at Miller & Chevalier Chartered, said that in 1986 he was able to get additional funding for 1988 and 1989, “but that funding was really to increase the compliance and enforcement efforts.”
“If there’s going to be additional funding, I would not be surprised if the same thing is true today,” he said.
With assistance from Llewellyn Hinkes-Jones in Washington (Bloomberg Law).
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