The challenges were underscored Wednesday in a report by the national taxpayer advocate, an independent official within the IRS, that noted early estimates suggest the agency needs an additional $495 million in 2018 and 2019 to meet the new obligations created by the Republican tax law.
Nina E. Olson, the taxpayer advocate, said in a statement as she released her report that funding cuts already “have rendered the IRS unable to provide acceptable levels of taxpayer service.” Now the agency "will have its hands full in implementing the new law,” Olson said. “The IRS will have a lot of issues to work through, and taxpayers will have a lot of questions."
The IRS received $11.2 billion in funding in 2017, which was a decrease of more than $900 million since 2010. The agency has lost the equivalent of around 18,000 full-time positions in that time, including some 3,000 in the taxpayer services division and 4,000 in the enforcement division. How much of a budget increase the IRS might get for 2018 cannot be determined until Congress resolves a larger ongoing dispute about government-wide spending levels.
But despite the GOP’s generally anti-tax stance, and its suspicion of federal bureaucracies, Republicans have every incentive to make sure the complex tax law rolls out smoothly. And for that, they will need a functional IRS, which even several conservatives acknowledged would require a larger budget.
“We want to make sure that we get the new law implemented well, and I think they are clamoring for assistance,” said Sen. John Thune (R-S.D.), the No. 3 Senate Republican. “So I suspect that if the requests are reasonable, there would be some sympathy for ensuring that this new law gets implemented in the correct way.”
Rep. Dave Brat (R-Va.), a member of the conservative House Freedom Caucus, which clashed strenuously with the IRS under the Obama administration, said, “I’m open to it if it’s rational and makes sense. There’s a lot of work. I want people to see the biggest paycheck they can get.”
For years, pleas for more IRS funding have fallen on deaf ears on Capitol Hill, where Republicans instead focused on controversy over the agency’s targeting of tax-exempt conservative groups. That led to aggressive oversight hearings in the House and, ultimately, to a drive by the Freedom Caucus to impeach former commissioner John Koskinen. That effort, which was not supported by House GOP leaders, finally ended in a House floor vote in December 2016 referring the impeachment resolution to committee.
While Republicans are now prepared to support more funding for the IRS, most were hardly offering a full-throated embrace.
“We need to reform the IRS because it’s been more of an adversary to the American taxpayer than it has been a help,” Senate Majority Whip John Cornyn (R-Tex.) told reporters Wednesday. “But I am concerned that they’re not able to do their job and not [maintain] their information systems to protect personal financial data by taxpayers and the like."
Before the tax law's passage, the IRS expected to be able to answer only 60 percent of the routed calls from the 100 million calls it receives from taxpayers — a burden expected to increase under the new law. Since 2014, the agency has stopped answering anything beyond “basic” questions from taxpayers during filing season.
Republicans have said their tax law will streamline and simplify the U.S. tax code, in part by increasing the number of Americans who claim the standard deduction on their income taxes. They've claimed repeatedly that many taxpayers would be able to file their taxes on a postcard. But the new law already created confusion about its implementation in late December, when taxpayers in several states rushed to try to prepay their 2018 property taxes in the hopes of avoiding the new cap on the state and local tax deduction. That uncertainty led the IRS to put out guidelines about who could and could not plan on deducting their property taxes ahead of time.
Rep. Richard E. Neal (D-Mass.), top Democrat on the Ways and Means Committee, said it was time for Republicans to stop criticizing the IRS and start providing the agency the funding it needs.
"Given the argument that we were going to use a postcard for the new tax filing system, I think that more likely we’ll be using a billboard to explain it," Neal said. "This system is going to be as complex as the last system. And I think you’re going to need the IRS to sort it.”
More challenges abound over the next several months for the IRS, which is led by an acting commissioner in absence of a permanent replacement for Koskinen. The tax law cut the mortgage interest deduction from $1 million to $750,000, but provides an exception for some loans closed after Dec. 15, 2017. Yet the IRS does not have access to dates of mortgage closings. Experts warned before the law's passage that it could trigger confusion in the tax system.
“Making massive changes to the system with an unconscionably short lead time is a recipe for disaster,” wrote the American Payroll Association in a letter to Congress shortly before the law passed.
The taxpayer advocate report noted that previous tax legislation also caused big spikes in the agency's workload. The 1986 tax overhaul signed by President Ronald Reagan, for instance, led the IRS to hire an additional 1,300 staff members and increase the number of phone calls it answered by 30 percent. The 2008 stimulus bill prompted a 125 percent increase in the number of incoming calls. A similar impact is expected from the GOP tax law. Over the course of 2017, however, the IRS lost 6,801 permanent staffers.