IRS Reform Bill Is Good Start That Falls Short of Modernization

New legislation from Senate Finance Committee Chairman Mike Crapo (R-Idaho) and Ranking Member Ron Wyden (D-Ore.) designed to improve IRS procedures and tax administration includes changes that would make tax filing easier and help protect low-income filers from fraud, such as by explicitly allowing the IRS to regulate paid tax preparers.

Policymakers need to build on this modest step through a robust effort to address the depleted state of the IRS.

The bill wouldn’t repair an IRS that is grappling with devastating funding and staffing cuts, leadership turmoil, and outdated technology. But it’s a positive sign that policymakers of both parties are prioritizing IRS improvements.

I hope this effort will eventually generate a more robust, bipartisan effort to rebuild and modernize the agency so it can fulfill its mission of collecting the revenue needed to fund public services.

Some of the bill’s most important changes (the Taxpayer Assistance and Service Act, or TASA) would give the IRS more regulatory authority to protect taxpayers from unscrupulous paid tax preparers, such as by strengthening penalties for preparer misconduct and allowing the IRS to revoke preparers’ tax identification numbers.

This authority is crucial because taxpayers rely heavily on paid tax preparers. Eighty-five million taxpayers (57% of them) used one to file a return in 2024. Of the two main types of paid preparers—those with credentials, such as CPAs, and those without, known as “unenrolled agents”—the IRS paradoxically has much less regulatory authority over those without credentials.

As the Finance Committee highlights, “demonstrating incompetence, defrauding taxpayers, or otherwise demonstrating a lack of fitness to prepare returns are not grounds for the IRS to deny, revoke, or suspend” a preparer’s tax identification number.

This is harmful and backward. Non-credentialed preparers make lots of mistakes. In 2022, for example, 96% of the total value of adjustments made to filers’ earned income tax credit amounts resulting from audits came on returns prepared by non-credentialed agents.

Their lack of tax preparation knowledge and, all too often, their fraudulent practices result in lost revenue and undermine the integrity of the tax code, including vital provisions such as the EITC.

When preparers make mistakes, tax filers—many of whom work for low wages—are left to deal with the fallout. This can include having to return money they don’t have, paying interest and penalties, and losing future access to tax credits they’ve otherwise earned.

TASA’s paid preparer provision is a step forward but leaves out other potential improvements. For example, it bars the IRS from requiring any competency test to ensure a base level of knowledge about preparing tax returns. Even volunteer tax preparers must pass a test before they prepare returns, so why shouldn’t a paid preparer?

The bill includes helpful IT provisions to make it easier to file returns and receive timely refunds, including a requirement that returns be digitized and technology improvements for tracking and accessing tax refunds. But it doesn’t provide additional funding for the IRS to implement these changes.

Congress recently passed a fiscal year 2026 appropriations package that cut $1 billion from the IRS’s annual budget and rescinded most of the remaining multiyear funding Congress provided in the 2022 Inflation Reduction Act to rebuild the IRS after a decade of steep cuts. The IRS budget is now 40% below its 2010 level, after adjusting for inflation. The number of IRS staff has fallen by nearly 20% in the past year due to Trump administration cuts to the federal workforce.

Among other cutbacks, the IRS has quietly lowered its goal for phone service this filing season, aiming to answer just 70% of incoming calls (down from 85% in 2025). This means many more taxpayers will fail to get their questions answered, and taxpayer errors will likely increase.

But the gutting of the IRS is most apparent in tax compliance and enforcement, as high-end tax evasion has become more complex while the IRS has fallen behind. The number of partnerships with more than $100 million in assets (mostly in finance, insurance, and real estate) rose by nearly 600% between 2002 and 2019.

These large partnerships are incredibly complex. More than 30% have at least 20 tiers—a convoluted structure that makes tracing ownership and income difficult or even impossible for IRS agents. Yet the IRS has about the same number of skilled auditors with the capacity to audit these complex returns as it did in the 1950s.

It isn’t surprising that fewer than 0.3% of large partnerships get audited, down from a still low 1.4% in 2007. And IRS agents often lack the resources to conduct adequate audits, which frequently result in no change to the return because, for example, the statute of limitations runs out. The IRS is simply outgunned.

Crapo and Wyden should be commended for their bipartisan effort to improve tax administration. But it’s only a first step. Democrats should press to restore the modernization effort they spearheaded several years ago, while Republicans should stop their constant campaign—which goes back to before 2010—to gut the IRS and instead come to the table in earnest and work to improve the IRS.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Chuck Marr is vice president for federal tax policy at the Center on Budget and Policy Priorities, a Washington, DC, think tank that promotes policies to reduce poverty and inequality.

Write for Us: Author Guidelines