For the IRS, Great Funding Power Comes With Great Responsibility

President Joe Biden recently signed into law the Inflation Reduction Act of 2022. In the law’s wake, tax pros have been attempting to understand its tax provisions, and much ink has been spilled on what its $80 billion in funding over 10 years means for IRS and taxpayers.

I have no doubt that tax experts, aided by the IRS and Treasury Department, will unpack the tax provisions. I trust the prevailing—if false—narrative that the IRS will hire some 87,000 agents to hound taxpayers (“everyone gets their own personal agent”) will come to be better understood.

While the law’s climate and health-care provisions are of broad importance, its long-term funding boost for IRS should also be a game changer for tax administration, taxpayers, and tax professionals.

In recent years, those who work with IRS, including the company I lead, have seen the agency struggle. My firm helps people who owe the IRS money or unfiled tax returns, and quite often both. As the largest company in America exclusively catering to post-filing issues, we have unique insight into the behavior of non-compliant taxpayers.

When the IRS made the extraordinary decision to pause almost all notices—its primary enforcement tool—we anticipated it would lead to more non-compliant behavior. Unfortunately, we were right. We have seen a general “wait and see” approach from taxpayers who owe, while their tax balances increase rapidly from IRS penalties and rising interest rates. We have also seen an alarming 40% increase of tax extension filings year over year, and we suspect many of them will not file by the extended deadline, which is a problem for all Americans.

IRS leaders have insisted the tax administration agency needs adequate, consistent funding for at least the past decade. The new law provides the IRS this funding. The agency now must make wise spending decisions, for this is a once-in-a-generation opportunity. Three areas will be critical: a substantive, executable, clear, plan; skilled senior staff; and real, timely, reasonable oversight.

Let’s take them in order.

Have a Clear Plan

A thoughtfully constructed plan makes a clear, unambiguous statement of what success looks like. To achieve buy-in and success, the plan must leverage stakeholder knowledge. The range of stakeholders is shockingly wide and includes state tax authorities, small businesses, tax practitioners, software firms, IRS employees, and—of course—taxpayers.

Former Commissioner Charles Rossotti stated 20 years ago that the IRS needs to consult and then decide rather than decide and then explain. That statement remains true. Stakeholders must understand that while everyone will get their say, not everyone will get their way. The IRS cannot satisfy everyone, though it can—and should—consider the wisdom everyone brings.

I suggest the agency’s North Star should be service at every stage: pre-filing, filing, and post-filing. The IRS should minimize friction and acknowledge that one size will not fit all 150-plus million individual taxpayers. And finally, Treasury should play a significant role in producing and approving the initial plan. Successful implementing this plan will be one of the most important Treasury projects in the next decade, and no one wins if Treasury and the IRS use the adjectives “they” instead of “we.”

Hire Skilled Staff

Commissioner Chuck Rettig’s statutory five-year term expires in November. The entire agency will look to its chief to lead in project development and execution, and a nominee for the job is of utmost importance. Even without the responsibility of a complete overhaul, the baseline responsibilities and scope of an 80,000-person organization with a $13 billion budget that touches nearly every American are staggering.

While the timing of the new law is fortuitous, no one has been nominated for this position, which should be a priority for the administration and Congress.

Given my day job, I appreciate a tax pro such as Rettig at the helm. But the next commissioner should be a proven leader with deep experience in customer service and IT development. I also would like to see appropriators provide expedited hire authority stripped in the Byrd Rule. Such authority would set up the new commissioner for success and allow them to augment current staff with senior advisers who understand taxpayers.

Use Reasonable Oversight

On the heels of planning and staffing, program oversight will be essential. Treasury, the US Government Accountability Office/Inspector General, and the Hill will each have a role to play. Too often, oversight is perceived as playing “gotcha” rather than a part of ongoing assessment and review. If this enterprise is to succeed, the oversight must be coordinated, transparent, and timely. Further, it should be provided in the spirit of ensuring success without concern for who gets the credit.

The IRS should welcome proper oversight, which helps leaders to correct course as necessary, to provide transparency to a complicated and occasionally controversial project, and to ensure success. To that end, oversight must be coordinated—no one benefits when the GAO, Treasury Inspector General for Tax Administration, and congressional committees are constantly tromping around in pursuit of unrelated, uncoordinated executables. The oversight also must be timely—no one benefits from a report that takes 18 months from start to finish.

Modernizing and overhauling the IRS is an enormous job, And while the funding to pull off these changes is necessary, it is not sufficient. The agency has a once-in-a-generation opportunity to provide effective, efficient tax administration, meet people where they are, and reduce friction throughout the enterprise.

I’m pulling for the IRS. You should be, too.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

David King is founder and CEO of Optima Tax Relief. Over the last decade, he has grown Optima to be an industry leader for post-filing tax issues.