There’s No Panacea to Improve IRS Capacity—Congress Must Help

Rarely in Washington does a federal agency leader so bluntly inform lawmakers that their agency struggles to meet its core mission and faces severe, foundational challenges. IRS Commissioner Chuck Rettig has consistently delivered that message to Capitol Hill. Yet Congress still pursues piecemeal approaches to improving tax administration, pursuing gimmicks and red herrings rather than tackling the existential challenges the IRS faces.

In an attempt to acknowledge the IRS’s struggles, Congress has proposed mandating the agency adopt 2-D scanning technology. Indeed, the IRS has requested funding for 2-D barcoding or scanning technology in congressional budget justifications in 2013, 2014, 2015, 2016, and 2017—but Congress never provided the funding. Recent efforts by the National Taxpayer Advocate urged Congress to fund 2-D barcoding and scanning.

This technology will undoubtedly make a difference in IRS operations and improve how the IRS handles paper. Unfortunately, barcoding and scanning will only alleviate a small portion of the IRS’s paper challenges. Although this technology primarily services original tax returns, original tax returns constitute the smallest component of the IRS’s service-wide paper inventory. Further, the IRS’s outdated computer system will not likely integrate with most modern scanners, forcing the IRS to spend significant resources developing custom software solutions to get this program up and running.

The IRS requires meaningful, sustained investments in its people, technology, and systems to restore organizational capacity and enable the agency to perform its duties in the 21st century. A series of small, one-off modernization projects will not resolve the IRS’s paper-related problems. Instead, the IRS needs long-term modernization.

Over the last decade, dwindling congressional appropriations have depleted the IRS’s budget and staff. Even after FY 2022’s historic increase in funding, the IRS remains $4 billion below its 2011 peak of $16.4 billion, when accounting for inflation.

But funding is just a symptom, not the cause.

Republican lawmakers are justified in their frustration with the IRS’s inability to modernize despite large funding allotments. The problem lay in the annual appropriations panic—the pernicious cycle of continuing resolutions and threatened shutdowns.

Take the FY 2022 budget process. Yes, the IRS received a historic funding increase. But this increase came five months after the start of the fiscal year and after three continuing resolutions. Now, FY 2023 is only five months away, and there are already rumblings around Congress of another continuing resolution to delay the process. Congress’s inability to pass consistent and timely appropriations makes long-term planning, and execution of those plans, impossible.

Like any private company, the IRS cannot function when it does not know how much funding it will have in five months. While in a continuing resolution state, the IRS does not enact long-term modernization plans and struggles to manage new hire onboarding and training. Continuing resolutions force the IRS to function in a state of limbo. The breakdown of the budget process has the IRS storing cash to prevent a total collapse in tax administration if Congress fails to offer timely funding.

Take the nearly $1.5 billion Congress allocated for the IRS in the American Rescue Plan Act (ARPA) as an example; Congress provided the funds over three years. When Congress learned last year that most of the funds went unspent, lawmakers complained to the IRS. However, lawmakers were not aware that the IRS was cautiously spending appropriations with the underlying expectation that additional promised funds would not materialize, or Congress would once again delay the appropriations process and force the agency into a stalled state. Each time Congress fails to pass appropriations, the IRS must cautiously couch funding to ensure it can continue functioning if Congress fails to fulfill its duty.

Under such circumstances, the IRS is simply acting with prudence informed by experience.

Put simply, to ensure the IRS can keep agency modernization plans moving forward, Congress must perform its basic constitutional duty and fund the government on time before the end of the fiscal year. One-off initiatives like mandating 2-D scanning will not bring the IRS into the 21st century. Only dedicated and consistent funding over multiple years will allow for real modernization to occur.

The IRS is treading on water and trying not to drown, eroded by decades of disinvestment and weighed down by unfunded policy mandates that have overwhelmed the agency for more than the past two years. Righting the IRS and preparing it for the future will not be easy nor cheap—it will take sustained, multiyear reliable investment from Congress.

This is not a new proposal. In 1959, Treasury Secretary Robert Anderson and Congress agreed to IRS plans to implement a national data processing system. Each year, Congress ensured the IRS had the funds it needed to realize its plan—and it did so ahead of schedule. In 1962, the IRS opened its National Computing Center.

Sixty years later, that same computing center has just processed yet another tax season and requires billions of dollars to operate and maintain. It’s time to bring back dedicated multiyear funding to allow the IRS to modernize its technology holistically, not just with some new scanning systems.

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

Chad Hooper is executive director of the Professional Managers Association (PMA). PMA is a nonprofit professional association that has, since 1981, represented professional managers, management officials, and non-bargaining unit employees at the IRS.

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