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Lawmakers should take steps to ensure their IRS restructuring efforts don’t hurt the agency’s ability to implement the new tax law, David Kautter, the IRS acting commissioner and assistant secretary for tax policy at the Treasury Department, said.
“The 2018 implementation of the tax reform bill is going to consume a lot of energy and effort in the Internal Revenue Service so we’ve got to balance the desire to do some restructuring” at the IRS with ensuring those efforts don’t disrupt “the implementation of tax reform,” Kautter told reporters following a Feb. 14 Senate Finance Committee hearing on President Donald Trump’s fiscal year 2019 budget request.
Some aspects of the agency’s operations—criminal investigations, IRS appeals, and taxpayer assistance—could potentially be addressed in legislation this year without impacting the implementation process, while other aspects should be tackled down the road, he said.
In addition, more discrete and specific proposals may be easier to enact in the short term, he said. “To the extent that it gets broader and it starts to have tentacles throughout the organization, that’s when it gets difficult to implement this year.”
During the hearing, Kautter noted three legislative actions Congress could take to improve tax administration: renew streamlined critical pay authority, making it easier for the IRS to hire and retain critical information technology specialists; allow correction procedures for specific errors; and provide the agency with authority to require minimum qualifications for paid tax return preparers.
Several lawmakers—Democrats and Republicans—during the hearing discussed the IRS’s budget and expressed a desire to raise funding levels.
“The administration, in its budget, has proposed additional cuts to funding for the IRS. I think that is a mistake,” Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said in his opening statement.
In the proposal, the president requested an appropriation of $11.1 billion for the IRS, and $362 million in additional funds for enforcement and cybersecurity improvements—at the expense of things like taxpayer services. The proposal represents a 6.1 percent decrease from the $12.2 billion in funding the agency received in fiscal year 2017 through a series of short-term spending bills.
“While I’ve had quite a bit to say over the years about the allocation of resources at the IRS, now, directly after passage of a major overhaul of the tax system, is not a great time to further reduce the taxpayer services budget of the agency that will do most of the work in implementing the updated tax code,” Hatch said.
Denying the IRS the resources it needs prevents the agency from being able to effectively serve taxpayers “and the Trump administration knows it,” Finance Committee ranking member Ron Wyden (D-Ore.) said.
“By the administration’s own projections, as a result of continued budget cuts for taxpayer service, fewer than half the people who pick up the phone to call the IRS for filing services in 2019 will get through, down from 75 percent in 2018,” he said in his opening statement.
Following the hearing, Kautter provided insight into the IRS’s thinking on regulations to implement new tax law provisions.
The IRS released an addendum to the 2017-2018 Priority Guidance Plan earlier this month that contained 29 regulatory projects to implement the 2017 tax act ( Pub. L. No. 115-97). The government seeks to release guidance in all of those areas by June 30, the IRS’s business year-end, Treasury officials have said.
Treasury Deputy Assistant Secretary for Tax Policy Dana Trier has said the goal is to issue the rules in proposed and final form, instead of relying on notices and temporary regulations in the short term—as the government did in the late 1980s, the last time there was a major overhaul of the tax code.
“We’d like to do as many regulations as we can,” although “regulations take longer,” Kautter told reporters. “If we find that there are areas where we need immediate guidance and we don’t have the time for the proposed regulations, we’ll go to notices or frequently asked questions.”
Kautter also said he’d like to start setting target dates for guidance, “which we haven’t done on a priority guidance” plan. “I think sometimes these issues get on the priority guidance list and we don’t have the sense of urgency that we need to have to get the guidance out in the time frame that I think taxpayers need this time around.”
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