IRS funding, technology assessed in House hearing

By Paul Bonner

While Congress has increased IRS funding in the current fiscal year, those dollars' allocation and timing remain problematic, IRS Commissioner Charles Rettig told members of the House Oversight and Reform Committee Thursday.

Rettig, along with National Taxpayer Advocate Erin Collins, appeared before committee members in the online hearing, titled "IRS: Is It Ready?" The session focused on the Service's performance in the just-ended tax filing season, its legacy of operations in many ways reflecting prior-generation ways of processing tax returns and correspondence, and its resulting vulnerability to dislocations in the COVID-19 pandemic. The hearing also dwelt upon prospects for the IRS not just to return to normal but to become a fully modern operation.

In his opening statement, Rettig, as he has in other such hearings, recounted the IRS's role in administering financial relief during the pandemic and declared the agency's readiness to receive input and advice. Also as previously, he offered to meet individually with committee members and to give them his cellphone number.

"I have welcomed oversight by all members of Congress; we have been proactive," Rettig said.

While the IRS is grateful for the budget increase it received in fiscal 2022, the representatives should keep in mind that it comes after decades of stagnation and isn't optimally allocated, Rettig said. Along with the rest of the federal government since 2001, the IRS has been funded through more than 100 continuing resolutions, in which Congress, in lieu of passing a budget, maintains prior levels. This has impeded the IRS's plans to modernize its computer systems, Rettig said.

"It is virtually impossible for any agency, any organization, any private-sector organization, to build out a robust, meaningful technology infrastructure with the start/stop going on like that," he said. "We got our omnibus budget last year on March 11; we got our budget this year on March 15. So we essentially have a little more than six months to do our technology planning with the funding that we received," Rettig said.

Moreover, the current budget left the IRS $100 million short in its allocation for operations support, he said.

"So, without the ability to move funds from one of the other budgets, with the ones that are out there, taxpayer service, modernization, and enforcement operations support, we need to make other cuts," Rettig said.

Despite that, the IRS is making progress in clearing its backlogged paper returns and correspondence, Rettig reported.

"We are in a very difficult situation," he said, but added, "Currently, our inventories are trending in a good direction." Congress "rescued us" by giving the Service direct-hiring authority in March, he said. Previous reports have said the expedited procedures were approved by the U.S. Office of Personnel Management.

Collins noted with approval the IRS's recent gains in getting a handle on paper-filed returns but said they still include more than 3 million original returns and 3.6 million amended returns from the 2021 filing season, added to by about 9 million filed this year, with more probably on the way during the extended filing period. These newer returns will be processed after the prior-year ones, she added, meaning that taxpayers will likely again have to wait months in the IRS's first-in, first-out policy.

Rettig's earlier pledge to clear the 2021 backlog by the end of this year is praiseworthy but hardly a panacea, given that processing of paper returns is still likely to take an average of six months, Collins said.

"I applaud that the IRS will get that done, but for those millions of taxpayers, that's an unacceptable answer," Collins said. Those refunds are going to be delayed for many months to come."

Collins also described scanning technology that could drastically speed up processing of paper returns over the current system of manually transcribing them by keypunch operators, as she formally directed the IRS to implement and that her office has recommended for 18 years.

"Today, that's not happening," Collins said.

Rettig said the IRS is eager to deploy scanning tech and had requested funding for it previously. Those requests were denied, so the Service shifted to emphasizing electronic filing, he said.

And the vice chair of the committee's Subcommittee on Operations, Rep. Katie Porter, D-Calif., was able to highlight her own contribution to the scanning effort in the form of recently proposed legislation. On April 6, Porter introduced H.R. 7428, the Streamlining IRS Operations Act. It would amend Sec. 6011(e) to direct the IRS to require that any tax return that is prepared electronically but printed out and filed on paper shall bear a code that, when scanned, can convert the return to an electronic format.

"This legislation would speed up IRS processing of millions of paper returns," Porter said. The subcommittee's chair, Rep. Gerald Connolly, D-Va., who chaired Thursday's hearing, co-sponsored the bill.

Several committee members took advantage of the online format of the hearing to play short video clips of their constituents telling about their own difficulties in corresponding with or calling the IRS about a contested tax deficiency or simply filing a return. In a clip played by Rep. Jamie Raskin, D-Md., a constituent said she called the IRS 50 times in vain, trying to verify her identity as requested. Finally, she said, Raskin's office was able to resolve the matter.

Both Porter and Connolly also were among members who touted IRS funding increases since 2020 as helping to reverse prior decades of underfunding and declining personnel levels.

But ranking member Rep. Jody Hice, R-Ga., stressed that scrutinizing funding and staffing alone was "far too simplistic" a solution, suggesting that, with technological improvements, the IRS shouldn't need as many people. Invoking the IRS's long and tortuous experience in trying to upgrade its 1960s-era computer systems, Hice also suggested that the IRS has not been competent to modernize its central Individual Master File system.

"It just seems like we've had a total waste of 50 years of trying to boost up and increase technological advances," Hice said. That led to one point of agreement with his Democratic counterparts — that more resources should have gone into scanning technology.

Scanning is a "no-brainer" move, Connolly said, noting that the U.S. Government Accountability Office has assessed its potential benefits as outweighing "any perceived costs."

"Which is actually a pretty strong stance for the GAO," Connolly said.

The AICPA continues to advocate for better IRS services; visit the webpage describing AICPA advocacy efforts to learn more.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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