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Once-Taboo IRS Funding Boost Gaining Steam in Congress

May 16, 2019, 8:45 AM

For years, the IRS couldn’t get congressional appropriators to bite on boosting their funding. But a glaring technology need—and a change in political climate—may help secure the agency its largest budget in years.

In the last five weeks, Treasury Secretary Steven Mnuchin and Internal Revenue Service Commissioner Chuck Rettig have made their rounds on Capitol Hill asking lawmakers to boost the agency’s budget to the administration’s requested level of $11.47 billion. If Congress bites, that would be the largest appropriation for the agency since fiscal 2013.

It is a notable shift: Republican appropriators in the House and Senate led years of budget cuts against the IRS, which emerged as a political battleground.

Sen. James Lankford (R-Okla.) said May 15 that lawmakers’ view of the IRS has shifted significantly under a new commissioner and as the agency began tackling its massive workload following the passage of the 2017 tax law.

That is a far cry from the “huge fight over Lois Lerner,” he said.

Lerner, a former head of the agency’s exempt organizations division, retired in 2013 following a broad outcry after the agency scrutinized political groups seeking tax exemptions.

Focusing on IT

The largest plank of the White House budget request is a funding allocation of $290 million to help the IRS overhaul its IT infrastructure.

Mnuchin has called this effort—which could cost between $2.3 billion and $2.7 billion over six years—his department’s biggest priority. He echoed that sentiment in May 15 testimony before a the Senate Appropriations Subcommittee on Financial Services and General Government.

Lawmakers have heard Mnuchin’s call and are responding in kind. Lankford said the Treasury Department and IRS have done good legwork in identifying their needs.

“What Mnuchin did, and why he’s so proud of it, is to try to determine that ‘If we are going to get our software up to speed, this is what has to happen.’ They did the work,” Lankford said. “So great, let’s help fund it and let’s help figure out how we’re actually going to manage this.”

Lankford sits on the Senate Finance Committee and the appropriations subcommittee.

Some House Republicans are showing similar openness. House Ways and Means Committee member Mike Kelly (R-Pa.) said private sector innovations in IT systems stand in contrast to the IRS’s aging technology.

Ways and Means member Vern Buchanan (R-Fla.), who previously chaired the panel’s tax policy subcommittee, said May 15 that the agency’s technology is his biggest concern.

“We clearly need to find a way that makes sense to bring them into the 21st century, so I think an investment there makes a lot of sense,” he said.

At the hearing, Rettig said the agency is very sensitive to the issues lawmakers have raised in the past. He pointed to the IRS’s recent victories in successfully implementing the 2017 tax overhaul and smoothly managing this year’s filing season as evidence that the its IT functions have continued to “pull forward.”

The agency’s IT modernization plan, which was unveiled last month, also has specific deadlines to ensure accountability, Rettig said.

“We’re more than willing to come on as often as possible to meet with you and your staff and others to walk through the specifics,” Rettig said. “It includes oversight on an ongoing basis by independent contractors and outsiders. It also includes oversight by Congress, and we look forward to that.”

Remaining Concerns

While there has been some progress for the IRS, some Republicans have stuck to old talking points. During the May 15 hearing, subcommittee chairman Sen. John Kennedy (R-La.) pressed Mnuchin and Rettig to justify the new technology spending request, saying that in the past “a lot of money has been wasted.”

“Why is this time going to be different?” Kennedy said.

Ways and Means ranking member Kevin Brady (R-Texas) said Republicans are supportive of the IRS’s technology needs. But the agency still has more work to do on showing it is making the most of its current resources.

“That’s not the case yet,” he said. “But I think they are making progress.”

Ways and Means member Jackie Walorski (R-Ind.) said Republicans’ mission over the last several years has been to hold the IRS accountable. The agency has had a history of asking for more money and failing to follow through on its promises. Her attitude now, she said, is to “trust and verify.”

“Until we can trust them to do what we’ve asked them to do and verify that, I think we ought to be very leery on how much money comes into their system, especially on IT,” she said.

Democrats Are Bullish

Democrats appear to have largely embraced the notion of boosting the IRS’s funding. Last month, Rep. Mike Quigley (D-Ill.), chairman of the House Financial Services and General Government Appropriations Subcommittee, stressed the need for a bipartisan effort to modernize the IRS.

Lawmakers “need to make sure they have the resources to enforce those efforts as well and those dollars aren’t taken away or reduced every year,” he said.

Sen. Chris Coons (D-Del.), ranking member of the Senate Appropriations Subcommittee on Financial Services and General Government, said even if Congress meets the department’s request, he is still concerned about the state of the IRS budget. The budget still remains about $1 billion short of where it stood last decade, he said.

“That is no disrespect to the professionalism of the folks at Treasury or the IRS in particular, it’s just I think we have understaffed and under-resourced the IRS,” Coons said.

To contact the reporters on this story: Robert Lee in Washington at rlee@bloombergtax.com; Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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