In the latest installment of Tax Analysts’ “Taxing Issues” webinar series, “The Future of IRS Funding,” Cara Griffith, President and CEO of Tax Analysts, spoke with Charles Rettig, former Internal Revenue Service (IRS) Commissioner; Nina Olson, former IRS National Taxpayer Advocate and now Executive Director of the Center for Taxpayer Rights; and Michael Desmond, former IRS Chief Counsel and now partner at Gibson, Dunn & Crutcher. The panelists discussed the Inflation Reduction Act (IRA) of 2022, which will increase IRS funding by $80 billion over the next ten years and how the IRS may use that money to improve taxpayer services, modernize, and increase tax compliance.
Griffith began the conversation by asking Rettig, who left the IRS in November of 2022, if the agency’s employees are up to the task of effectively and efficiently spending $80 billion. Rettig responded that IRS employees have a history of rising to challenges from long before he joined the Service. The employees’ resilience, Rettig said, continued through the COVID-19 pandemic, during which many employees went into the office, prioritized issuing refundable tax credits, and issued three rounds of Economic Impact Payments (EIPs) to eligible individual taxpayers. Further, Rettig underscored that all IRS employees understand the efficiency, effectiveness, and responsibility with which they must dispense the $80 billion. Consequently, Rettig believes the IRS will improve call services, modernize its systems, and provide in-person staff for taxpayer assistance centers (30-40 of which were, at times, unstaffed).
Olson was less optimistic about how the IRS will use its recent funding increase: “you can’t do transformation in a vacuum.” She explained that the last major transformation of the Service, the Internal Revenue Service Restructuring and Reform Act of 1998, was preceded by much legislative history – a bipartisan commission, written testimony from taxpayers and tax professionals, hearings in the Senate and House of Representatives, and committee and conference reports. As a result, Olson argued, there was then a clear and bipartisan consensus concerning what the new IRS should do and look like. In contrast, Olson pointed out, the legislative history of the IRA is minimal.
Olson further explained that, in the 35 years between 1986 and 2021, the amount of money the IRS collected as a result of enforcement actions remained relatively stable – despite fluctuations in, among other things, the IRS’s issuing of liens and levies. Consequently, Olson believes that other factors explain the amount the IRS collects – namely, public trust in the agency, which Olson says can and must be increased, and the IRS’s slowness in responding to taxpayers’ phone calls and correspondence.
When asked what the IRS could do on a more granular level, Desmond said the IRS can use its increased funding and staff to avoid unnecessary taxpayer audits. Specifically, the IRS could answer taxpayers’ open questions (including which documents taxpayers should retain), issue letter rulings, and undertake other efforts on the front-end in order to avoid examinations on the back-end. Further, Desmond argued that, now that COVID-19 has forced the IRS away from its geographic model, the Office of Chief Counsel could leverage its employees across the country to staff large cases where appropriate. Desmond also said that the IRS should train its examination and compliance employees about the Tax Cuts and Jobs Act of 2017 that, among other changes, nearly doubled the standard deductions for individuals while imposing new limitations on itemized deductions, and reduced the corporate income tax rate from 35 to 21 percent.
Olson added that taxpayers in different parts of the country view tax differently. As a result, Olson would like to see more auditors and collection officers working in the communities they serve and building trust within those communities. Similarly, Rettig would like the IRS to publish guidance that is timely and understandable by the average taxpayer – what he described as “single-syllable, effective communications on the streets [and] at events.”
The panelists also discussed how the IRS could use its increased funding to make the agency a more attractive place to work. For example, Olson said the IRS could offer to pay for its employees’ LLMs in taxation, MBAs, and computer science and human resources degrees in exchange for a commitment to work at the IRS for a number of years. Rettig added that the IRS should work towards providing a similar slate of benefits as the private sector does (e.g., tuition reimbursement, elder care, and childcare).
To conclude the webinar, the panelists underscored what the IRS can usefully do with its increased funding. Olson argued that the IRS can now improve taxpayers’ day-to-day interactions with the agency by answering taxpayers’ calls and correspondence faster, and providing them with easy-to-use online accounts. Desmond added that most compliance disputes are rooted in misunderstandings between taxpayers and the Service. Desmond argued that the IRS should, therefore, devote more resources to answering taxpayers’ questions up front and processing tax returns faster. Rettig agreed and added, “Most people try to do it right. IRS’s top priority should be to help people get it right.”
