Chairman Chris Van Hollen & Ranking Member Cindy Hyde-Smith
Senate Appropriations Committee
Subcommittee on Financial Services &
The Capitol Room S-128
Washington, D.C. 20510
RE: Professional Managers Association Letter Regarding Internal Revenue Service Funding for FY 2023
Dear Chairman Van Hollen, Ranking Member Hyde-Smith, and Members of the Subcommittee:
On behalf of the Professional Managers Association – the non-profit professional association that has, since 1981, represented professional managers, management officials, and non-bargaining unit employees at the Internal Revenue Service (IRS) – I write regarding funding for the IRS in FY 2023.
The IRS is the primary revenue source for the entire federal government. Without revenue from the IRS, it is impossible to fund any other federal agency or agency initiative. Put simply, we fund freedom. It is therefore critical that the IRS receive adequate funding in FY 2023 and well into the future. To that end, PMA supports the Biden Administration and IRS proposals for funding in FY 2023.
We do however urge Congress to fund the government on time and commit to more sustainable, long-term funding.
PMA, IRS leaders, and many stakeholders have consistently emphasized the urgency of increasing IRS funding levels. The dramatic and consistent funding cuts the IRS experienced from 2010 to 2018 had a devastating impact on the IRS’s ability to ensure the equitable enforcement of our tax laws and delivery of taxpayer services, modernize technology systems, and implement changes to tax law enacted by Congress.
PMA applauded the historic increase in IRS funding in FY 2022. However, we must acknowledge that, at $12.6 billion in funding, the IRS is still nearly $4 billion below its 2011 peak of $16.4 billion, when accounting for inflation. The FY 2022 funding is also below the $13.2 billion President Biden requested.
Funding issues underlie almost every tax administration challenge the IRS faces. When the IRS lacks mission resources, it is unable fully execute its mission.
The Congressional Budget Office (CBO) estimates increasing the IRS’s funding for examinations and collections by $20 billion over 10 years would increase revenues by $61 billion, and increasing funding $40 billion over 10 years would increase revenues by $103 billion. No other agency can boast such a return on investment. The research is clear – consistent, robust funding will enable the IRS to collect all the revenues due by law to be collected.
The President FY 2023 Budget Request for $14.1 billion for the IRS with $310 million for systems modernization will assist the IRS in addressing some barriers to success. However, this single increase, if enacted, will not provide the IRS the stability it needs to ensure a modern, fair, and equitable tax system. As previously mentioned, the IRS remains a long way from FY 2010 levels, and will require the ongoing investment of billions to effectively close the tax gap to collect a potential of $1.4 trillion in unpaid taxes.
Consistent, robust IRS funding is necessary and appropriate for several reasons: (1) funding increases are necessary to ensure the equitable enforcement of tax laws and delivery of taxpayer services; (2) consistent funding increases are necessary to modernize the IRS technology functions to meet taxpayer needs; and (3) funding increases are necessary to meet the evolving missions of the IRS.
I. Funding increases are necessary to ensure the equitable enforcement of tax laws and delivery of taxpayer services.
A combination of internal equity issues and funding constraints drive the inequitable delivery of taxpayer services.
Oversight is necessary to ensure IRS leadership is taking an active role in addressing barriers to the advancement for women and people of color within the Service. The IRS workforce has steadily increased in diversity over time. Unfortunately, IRS leadership does not reflect the diversity of its workforce. A March 2021 annual report reflects a significant drop-off of women and people of color in IRS leadership positions.
The failure to ensure a diverse cadre of employees rise to leadership levels has a direct impact on taxpayer services.
Issues regarding the equitable enforcement of our tax laws are well-documented and have been repeatedly reported to Congress. In the absence of robust enforcement funding, the IRS disproportionately audits low-income Americans, often people of color, with the simplest tax returns to review. Meanwhile, high-income earners with complex tax returns are infrequently audited due to a lack of time and resources.
The IRS also fails to provide low-income taxpayers with adequate taxpayer assistance services. While the IRS does sponsor a program to provide free legal assistance to low-income taxpayers, in Mississippi, the state with the highest audit rate in the country, ProPublica discovered in 2019 that there was only one attorney for the program in the entire state.
This legal assistance program is just one example of a well-intentioned program meant to assist those in need that has failed its taxpayers due to a lack of funding and oversight by Congress.
Similarly, PMA learned in February 2020 that, despite mandates under both Title VI of the Civil Rights Act of 1964 and Executive Order 13166 prohibiting discrimination based on national origin and requiring federal agencies to provide individuals with limited English proficiency “meaningful access to program benefits and services conducted or funded by the federal government,” as well as the reality that over 67 million American have a primary language other than English in their home, the IRS was neglecting to provide multi-lingual telephone support to domestic taxpayers. Instead, according to the EDI office’s own admission to PMA, the IRS was engaging in civil rights settlements with these individuals, allowing the Service to quietly continue failing to provide equal access to taxpayer services.
It was likely no single ‘racist’ individual’s decision to fail to provide non-English speaking Americans with taxpayer assistance services. Rather, an unconscious bias toward English speakers and a lack of diverse voices at the Service’s decision-making tables allowed this inequity to exist. Thankfully, and to the Service’s credit, this issue has been addressed and the IRS now provides multi-lingual telephone support for domestic taxpayers as required by law.
This example demonstrates that positive and rapid change is possible when pressure is placed on leadership to elevate issues of diversity and equity. It also illustrates the necessity of ensuring diverse voices are heard within the IRS and each IRS leader is trained in diversity, equity, and inclusivity issues.
A gutted IRS creates a two-tiered tax system where low-income Americans are over-audited and underserved while wealthy Americans can avoid or evade paying an estimated $160 billion in taxes. Adequate funding and oversight are necessary to rectify these inequities.
II. Consistent funding increases are necessary to modernize the IRS technology functions to meet taxpayer needs.
The IRS must upgrade and integrate its 60+ overlapping taxpayer databases, used by more than five generations of IRS employees. The Individual and Business Master Files are the oldest computing systems still in use within the Federal government. These systems were developed with appropriations under President Eisenhower and implemented in the Kennedy administration. The IRS cannot be expected to meet modern needs with archaic technology. IRS systems face unique risks due to a continued reliance on legacy programming languages, outdated hardware, and a shortage of staff with critical skills needed to maintain these systems.
Recently, much attention has been given to mandating the agency adopt 2-D scanning technology. Indeed, the IRS has requested funding for 2-D barcoding or scanning technology in congressional budget justifications in 2013, 2014, 2015, 2016, and 2017—but Congress never provided the funding. While this technology is undoubtedly important, Congress cannot continue taking a piecemeal approach to modernizing the IRS.
Even if the IRS adopted 2-D scanning, the IRS’s outdated computer system will not likely integrate with most modern scanners, forcing the IRS to spend significant resources developing custom software solutions just to get this program up and running. The IRS wastes roughly $2.04 billion on maintaining legacy systems. A wholesale update is necessary, and it cannot happen under Congress’s broken appropriations process. Due to a consistent lack of funding, the IRS recently extended its target completion date for fully transitioning away from magnetic tape to 2032. We cannot overemphasize the precarious state of our nation’s tax infrastructure.
Congress passed three continuing resolutions prior to appropriating funds for FY 2022. Congress finally delivered funding five months late and only six months before FY 2023 is scheduled to begin.
The IRS cannot enact a long-term plan to modernize its systems when it does not know what funding it will have in six months. The IRS cannot conduct robust hiring and onboarding when it is in a continuing resolution state. Put simply, the IRS cannot do its job effectively when Congress consistently fails to do its job. And taxpayers ultimately pay the price.
The Congressional appropriations process is broken, and the IRS cannot wait for it to be fixed. Therefore, PMA proposes multi-year funding for the IRS, specifically for technology modernizations.
This is not a novel concept. In 1959, Treasury Secretary Robert Anderson and Congress agreed to a multi-year plan to allow the IRS to implement a national data processing system. Congress consistently and reliably provided the IRS funds to execute the plan. In 1962, the IRS opened its National Computing Center. Unfortunately, 60 years later, the IRS continues to rely on this very same system without modernization.
It is time Congress work with the IRS once again to ensure consist, reliable funding for the IRS to modernize its technology systems.
Without robust, multiyear funding the IRS will continue to struggle to undertake the necessary long-term transformation envisioned by the Taxpayer First Act to enter the 21st Century and meet modern taxpayer needs.
III. Funding increases are necessary to meet the evolving missions of the IRS.
IRS employees have been administering the 2022 tax season while handling a backlog from the 2021 filing season and grappling with retroactive tax law changes, expanding credits, delivering nearly a half billion economic impact payments, and continuing to manage dozens of complications impacting both the 2021 and the still-ongoing 2020 tax filing seasons. These conflicting missions call upon the IRS to be far more than just a tax administration agency. The IRS now also serves as a benefits administrator and an emergency relief agency.
Further, as the IRS is called to shift resources to address the 2021 filing season backlog, it struggles to meet its other mission priorities.
This phenomenon did not originate during the pandemic. Since 1993, the Congressional mandates falling on the IRS, outside the traditional filing season and tax administration roles, have dramatically increased. The IRS has been called upon to manage healthcare expansions and alternative energy credits. During the 2008 economic crisis, the Congress called on the IRS to stabilize the housing market but did not provide tools for the IRS to independently research land deeds and titles resulting in the widespread burden falling on taxpayers to provide documentation. Unlike the Department of Housing and Urban Development (HUD), the IRS is not equipped to interpret deed and title recording practices varying from county to county, or town to town.
To administer the Individual Taxpayer Identification Number program, which provides SSN-type numbers to non-citizen taxpayers, the IRS needed to learn how to examine foreign passports, foreign medical records, and foreign birth certificates, among others. Unlike Immigration and Customs Enforcement (ICE), IRS employees are not forensic examiners for foreign documents.
To administer generous, refundable tax credits for families, the IRS must determine legal parentage and navigate complex custody issues. There is no centralized database the IRS can rely upon to independently verify custody. As a result, taxpayers are burdened and must provide extensive documentation demonstrating legal custody. Because 50/50 custody arrangements are popular in family court, this can become an absurd exercise where the IRS must ask parents for calendars marking each night their child slept in their home.
PMA needs the Congress to understand how difficult it is to administer these types of credits and programs.
Despite expanding mandates, the IRS has not seen a commensurate increase in funding. In 2019, the National Taxpayer Advocate highlighted this conflict in noting the IRS is neither funded nor staffed to serve as a benefits agency. This hinders the IRS’s ability to perform critical functions such as collecting $3.5 trillion in revenue, processing 253 million tax returns, and issuing $452 billion in tax refunds.
If Congress wishes to continue expanding the IRS mission, it must provide the resources and funding to support this new, reimaged Federal agency.
In summary, PMA calls on the Congress to provide multiyear budgets for the IRS to ensure the equitable delivery of taxpayer services, the modernizations of the IRS’s IT systems, and the delivery of the IRS’s many new missions. Without the IRS, it is impossible to fund any other federal agency and achieve any of policy objective. We urge the Subcommittee to listen to the calls of many across government and the private sector encouraging additional, consistent funding for the IRS.
Thank you for your consideration of PMA’s perspective. Please contact PMA Washington Representative Natalia Castro (email@example.com) if we can be of further assistance.