Critics watchful as IRS prepares for $78 billion influx



As the IRS plans for a $78 billion investment that could transform the agency over the next decade, Democrats and Republicans have starkly different views about the challenges it faces going forward.

The tax-collecting agency has struggled for years with customer service issues, delays processing tax returns, hiring and retaining key staff and safeguarding taxpayer information, according to the U.S. Government Accountability Office.

The IRS has a big job. It collected more than $4.9 trillion in taxes, processed about 260 million tax returns and issued more than $640 billion in refunds and outlays in fiscal year 2022, said Jessica Lucas-Judy, director for Strategic Issues with the Government Accountability Office. The agency is already preparing for a major overhaul as a result of the $78 billion included in the Inflation Reduction Act for the agency through the end of fiscal year 2031. This includes nearly $3.2 billion for taxpayer services, nearly $4.8 billion for modernizing business systems, and more than $25.3 billion for operations support, which includes the operation and maintenance of IRS’s IT systems.

Some of the agency’s performance metrics have been poor.

IRS customer service representatives answered less than one out of five taxpayer calls seeking live assistance during the 2022 filing season. About 55% of the IRS’s correspondence inventory was late as of the end of the 2022 filing season, according to testimony from the Government Accountability Office. The IRS has made progress in 2022 reducing its backlog of taxpayer correspondence from about 5 million to about 400,000. To do so, it reassigned staff from answering phones to processing correspondence. Partly as a result, many phone calls went unanswered.

U.S. Rep. Lisa McClain, R-Mich., said problems at the agency have not improved.

“The IRS has been plagued really with dysfunction for decades,” she said at a subcommittee hearing. “The dysfunction is across the board, from data breaches, leaks and identity theft to slow audits, backlogs and really horrific customer service.”

McClain said those problems had existed for years despite congressional oversight and warnings from watchdog groups. She also said the $78 billion Congress approved for the IRS in the 2022 Inflation Reduction Act won’t go to fixing longstanding problems at the agency. She noted that funding for taxpayer services, such as processing returns, will get a 9% funding increase while enforcement, such as audits, will get a 69% funding increase.

“This funding spree prioritizes enforcement over improving taxpayer services,” she said.

U.S. Rep. Kweisi Mfume, D-Maryland, said investment in the IRS has already improved taxpayers services, citing shorter wait times and reducing the backlogs. He said the IRS has been repeatedly portrayed by some as an “army of boogeymen waiting to kick in your door and lock you up.” Mfume said that was a dangerous mischaracterization.

“Congress must continue to ensure that the IRS has the funding and the resources necessary to maintain its remarkable progress since [the Inflation Reduction Act] became law,” he said. “Progress that is unheralded in many respects.”

U.S. Rep. Katie Porter, D-Calif., said the IRS has been the victim of a death by a thousand cuts.

“For too many years Washington politicians have worked to gut the Internal Revenue Service,” she said. “And they found creative ways to cut the IRS time and time again.”

IRS budget documents show the agency’s operating costs have doubled from $7 billion in fiscal year 1993 to $14.3 billion in fiscal year 2022. Over that same time period, the number of full-time equivalent positions at the agency has fallen from a high of 113,460 in fiscal year 1993 to a low of 73,519 in fiscal year 2017. Since then, full-time equivalent positions at the agency have increased each year to 79,070 in fiscal year 2022. That number could climb by up to 86,852 full-time employees over the coming decade as a result of a $78 billion investment in the agency included in the Inflation Reduction Act. Measured in constant dollars with 2022 as the base year, IRS operating costs over the past 10 years have fluctuated from $14.1 billion in fiscal year 2013 to a low of $12.9 billion in fiscal year 2019. Since then, it has climbed and was 14.3 billion in fiscal year 2022.

The money included in the IRA provides $45.6 billion for strengthening enforcement activities.

IRS Commissioner Daniel Werfel told committee members: “There’s more to do.”

He said the agency has made progress addressing issues as a result of the new funding, but said more needs to be done.



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