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Amid painful tax season, bipartisan duo eyes IRS budget fix

Modernizing the agency is a rare area of agreement; how to do it remains fraught

Sens. Rob Portman, R-Ohio, right, and Benjamin L. Cardin, D-Md., are working on a bipartisan proposal to modernize the IRS.
Sens. Rob Portman, R-Ohio, right, and Benjamin L. Cardin, D-Md., are working on a bipartisan proposal to modernize the IRS. (Tom Williams/CQ Roll Call file photo)

After giving the IRS its biggest budget boost in years, some lawmakers are turning to new efforts to deliver resources to the beleaguered agency in the middle of a tax filing season plagued by lengthy delays and a hefty backlog of unprocessed returns.

Sens. Benjamin L. Cardin, D-Md., and Rob Portman, R-Ohio, are assembling a proposal focused on modernizing the IRS — a rare area of bipartisan agreement when it comes to the nation’s tax collectors — that could involve dedicated funding for the perennially cash-strapped agency. But Democrats’ other goals for bolstering the agency likely hinge on agreeing to a larger budget reconciliation package they can pass without GOP support.

“This is … clearly moving in the right direction,” Senate Finance Chair Ron Wyden, D-Ore., said after the IRS got a 5.6 percent budget increase in the fiscal 2022 omnibus spending package. “We’ve got a lot to do. And we need new tech; we need more investigators; we need hiring authority.”

The current tax season has thrown into sharp relief the partisan divide on the IRS. As the agency battles a backlog of millions of unprocessed tax returns and correspondence with taxpayers, Democrats at both ends of Pennsylvania Avenue as well as the taxpayer advocate’s office, an independent watchdog within the agency, have urged more funding as the solution.

Republicans largely disagree, arguing the agency has failed to use existing funds and make technological improvements that could lower budget needs in the future. Democrats have called for a better-resourced agency to go after wealthy tax evaders, while the GOP has hit back at the idea of expanding the presence of tax auditors.

It’s a divide likely to be on display again Thursday when IRS Commissioner Charles P. Rettig appears before the Ways and Means Oversight Subcommittee. During a February hearing, ranking Republican Tom Rice of South Carolina pinned the problem on the IRS’s yearslong failure to keep up with technology, while Democrats also urged more funding.

Unpredictable funding

Cardin and Portman’s efforts could offer an avenue for lawmakers to address IRS woes outside the appropriations process, which faces other constraints, like the amount allocated to nondefense spending as a whole and unpredictable timing and results.

The duo has teamed up for several bipartisan projects, going back years to when they served on House Ways and Means together. As Senate Finance Committee members, they introduced a retirement savings bill last year and co-authored a 2018 IRS reform measure, which wasn’t taken up. That measure included authority to help recruit and retain information technology workers and a requirement that the government set standards for taxpayers’ signatures on commercial electronic forms.

Cardin said his latest project with Portman would provide “more predictable support” to modernize the IRS and that staff is actively working on filling in the details. Portman confirmed the effort and its focus on modernization.

The IRS’ tech problems range from outdated computer systems and online tools to the need for a chain of employees to manually process paper filings.

The Finance Committee’s top Republican, Sen. Michael D. Crapo of Idaho, said he couldn’t determine whether he’d support the bipartisan effort without seeing details but that there’s a need for IT improvements at the IRS, citing its inability to handle the volume of phone calls it receives.

“That’s the one area where … I’d be open to looking at what they’re doing,” Crapo said.

Wyden also said he’s open to Cardin and Portman’s proposal. Sen. Elizabeth Warren, D-Mass., a Finance panel member, welcomed the effort.

“The IT at the IRS is so far behind where it needs to be that they have a really deep hole to dig out of,” Warren said. “We need to make significant investment to bring the IRS into the 21st century and this is something that shouldn’t be partisan. We should all have an interest in the efficient, effective functioning of the IRS, so I hope we can work with Republicans on this.”

Last year, Warren introduced legislation that would make IRS funding mandatory, or provided each year independent of the appropriations process, and more than double its current budget to $31.5 billion, adjusted for inflation annually. Of that figure, 50 percent would be devoted to enforcement and 15 percent to taxpayer services.

Warren has only attracted one co-sponsor so far, California Democrat Alex Padilla. But there’s support from stakeholders for the general concept.

The Professional Managers Association, a membership group for IRS managers, is urging lawmakers to act outside the appropriations process. Executive Director Chad Hooper said in a statement on the omnibus’ passage that Congress’ inability to pass budgets on time holds the agency back. He called for multiyear dedicated funding for IT modernization.

“Only with dedicated funds that the IRS can rely on outside the traditional dysfunctional appropriations cycle can the IRS finally modernize its core computing databases, which entered their 61st year of continuous operation in January,” Hooper said.

Crapo and some Democrats pointed to the latest IRS budget as solving some problems, though most didn’t believe the funding gain had settled the issue.

Baby steps

The delayed appropriations law for the ongoing fiscal year included almost $12.6 billion for the IRS, representing a significant boost after years of stagnant funding. The Biden administration and congressional Democrats proposed a 14 percent increase, so the end result still fell short of their aims.

The biggest increases went to taxpayer services and efforts to modernize the IRS, both areas that have been a focus given that the agency has been unable to answer most calls — among customer service struggles — and that the need to manually process paper returns has been a leading cause of current backlogs.

The IRS has assembled surge teams to redirect staff and is hiring to fill 5,000 positions in the coming months, but higher funding comes too late to assuage all troubles with only a month left in filing season. There’s been bipartisan pressure on the IRS to use all its tools to make the 2022 process easier on taxpayers, including suspending notices and other relief.

The budget for taxpayer services climbed 8.7 percent to $2.8 billion from fiscal 2021, and the funding for modernization grew by about 23 percent to $275 million. Meanwhile, enforcement funding climbed by 4.3 percent.

Senate Financial Services Appropriations Subcommittee Chair Chris Van Hollen, D-Md., whose panel funds the IRS, was skeptical of returning to the issue for further bipartisan efforts outside the appropriations process. He said that Democrats pressed for more IRS funding than was in the omnibus, but Republicans resisted.

“Clearly we need more of a onetime large infusion for their, sort of, infrastructure like for their computer systems, their technology,” Van Hollen said. “Just like we did the infrastructure bill for our, you know, roads and bridges, we need a IRS infrastructure program.”

But he pointed to Democrats’ stalled $2.2 trillion social safety net and climate package as the venue for that overhaul. That package included $80 billion in funding aimed at narrowing the “tax gap” between what’s owed and paid to the government each year, making it a revenue raiser in the bill.

The latest version of that bill would devote more than $4.7 billion through fiscal 2031 to modernizing business systems and almost $3.2 billion to taxpayer services along with enforcement and operations funding, though all of the money is aimed at supporting tax enforcement activities.

House Ways and Means Chairman Richard E. Neal, D-Mass., pointed to remaining enforcement and technology needs with the fiscal 2022 budget increase in place.

Funding in the omnibus “will probably get us through this filing season, but I think it’s gonna need more,” Neal said.