Reaction to increased funding for IRS operations in the Inflation Reduction Act, P.L. 117-169, enacted Aug. 16, has featured "heated rhetoric," but the act has also prompted real concerns regarding how the funding will be used and what that means for the tax profession and taxpayers, said AICPA President and CEO Barry Melancon, CPA, CGMA, in a statement Thursday.
"In recent weeks, there have been several suggestions of a militarized IRS that could be misleading," Melancon said. "While it is true that the IRS has a criminal investigation unit that looks into certain fraudulent tax violations such as money laundering, cybercrimes, and organized crime involving drugs and gangs, recent claims of 87,000 new armed IRS agents to aid in enforcement are not rooted in fact."
However the act's allocations between enforcement and service lack balance, Melancon said.
The act directs the largest portion, $46 billion, of its total of approximately $80 billion in new funding to tax enforcement. Another $25 billion is earmarked for IRS operations and $5 billion for business systems modernization. Taxpayer services gets only $3 billion.
"The AICPA has always publicly advocated for funding that supports an effective and efficient tax administrative system, and we are pleased to see that Congress has made a significant investment in critical IRS divisions," Melancon said. "However, we believe there is a gross imbalance between the Inflation Reduction Act funding allocated to enforcement and the funding allocated to service in light of the ongoing processing delays, outstanding backlog of returns, and basic customer service issues plaguing the IRS."
Noting that nothing in the act precludes the IRS from shifting money from one function to another, Melancon said the AICPA has long advocated for adequate fiscal support for IRS taxpayer services and will continue to do so.
"While we understand why a revenue-maximizing amount for IRS enforcement funding was included in the Inflation Reduction Act, we must and will continue to push for appropriate funding for taxpayer services," he said.
Melancon also said the AICPA recognizes and appreciates the Service's recent efforts to provide taxpayer relief in light of the COVID-19 pandemic, such as its notice released Wednesday waiving failure-to-file penalties for a broad range of tax and information returns for 2019 and 2020 tax years. The IRS said its move, despite providing taxpayer relief, was also intended in part to allow it to turn more of its attention to its backlogged returns and taxpayer correspondence.
"However, there is still much work to be done to reduce backlogs and improve service," Melancon noted, and pandemic-related problems may worsen as the 2022 fall tax filing season approaches. Other necessary reasonable measures include suspending automated collections, continuing a pause on automated notices, and keeping in place IRS "surge teams" to reduce the backlogs, he said.
The AICPA is known "for our unwavering commitment to good tax policy and effective tax administration," Melancon said. "The heated rhetoric about a militarized IRS is irresponsible [and] potentially dangerous for IRS employees."
Moreover, such irresponsible pronouncements also can "distract from the fact that the Inflation Reduction Act got the funding balance wrong when it allocated $45 billion to enforcement and only $3 billion to service," Melancon said. He called on the IRS to promptly and transparently explain how it intends to use the funding.
Earlier Thursday, IRS Commissioner Charles Rettig said in an editorial on Yahoo Finance that the statement that "the IRS is hiring 87,000 armed special agents to harass taxpayers" is "absolutely false." He also debunked the notion that the funding will allow "a massive overnight expansion of the IRS," noting that it is spread over 10 years and new hiring will be offset by at least 50,000 retirements in "the next few years," and that the current staffing baseline now is low by historical standards. He also rebuffed any suggestion that the funding will lead to more audits of small businesses and low- or middle-income individuals.
Rettig also said in the editorial that the funding will allow the IRS to provide "badly needed, meaningful service improvements" including answering phones and processing information and returns more timely. He did not, however, directly address the act's relative funding levels for enforcement and services.
— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.