When I served as Commissioner of Internal Revenue from 2003 through 2007, the two fears that kept me up at night were of a botched filing season and a massive data breach. The damage from either event in the current environment would extend well beyond the nation’s tax system and further erode already badly undermined faith in government itself. The continuing ability of the IRS to process tax returns and issue refunds on the one hand, and protect taxpayer information on the other, depend upon the IRS having a workforce and information systems that are up to the task. At this point, the IRS has neither.
The annual filing season is always job number one at the IRS, but passage of the Tax Cuts and Jobs Act (TCJA) in December 2017 guaranteed that the exercise now underway would be the most challenging in decades. The TCJA overhaul, touching as many elements of the tax code as it does, has launched an avalanche of guidance, revision of tax forms, and reworking of systems never seen before at the IRS. It is worth remembering that when the last major reform took place in 1986, tax administration was nowhere near as reliant on information systems as it is today. And with electronic filing being such an important part of the process, the IRS no longer processes returns independently; it does so through the sharing of data with software vendors and, when paying refunds, financial institutions.
The IRS has plenty of experience delivering a complex bill of work with statutory deadlines. And it usually does pretty well in such endeavors, the most recent examples being solid execution of new duties in accordance with the Foreign Account Tax Compliance Act and the Affordable Care Act. What has made the TCJA lift so heavy is the continuing deterioration of the agency’s infrastructure, human and technical. The punitive defunding of the nation’s tax collector since the political targeting scandal of 2013 has taken its toll. Nevertheless, my take is that sheer effort and a sharp focus on TCJA implementation actually put the IRS in a pretty good position to meet its filing season obligations—that is, until the government shutdown.
It is time for Congress to step up and invest adequate resources in the tax system, rebuilding the IRS over a sustained period.
Impact of the Shutdown
For the IRS, the federal government shutdown (December 22, 2018, to January 25, 2019) could not have come at a more telling moment, right in the midst of staffing up and training the seasonal employees who process returns, and conducting the final tests of the processing routines and numerous interfaces in its complex IT systems. The fact that thousands of employees ignored calls to show up at work in an unpaid capacity left the agency badly exposed to unforeseen problems and with mountains of unmet taxpayer requests. Particularly concerning is the departure of seasoned information technology personnel for greener pastures in the private sector. An uncertain government paycheck in the midst of a robust economy has prompted many to rethink their commitment to public service. I also worry that retirements will spike as the months go on. Even as the IRS staggers through the filing season, the dearth of trained personnel to fill in as more experienced colleagues depart puts the tax system on shaky ground for the future.
Taxpayers are feeling the impact of a weaker IRS. Frustration levels are on the rise at a time when stress is already high from questions about, and for some an unforeseen change in, their 2018 year-end tax position. And that doesn’t even cover the people who are anxious about a pending notice or have an audit underway.
A shutdown of the National Park Service inconveniences people engaged in a discretionary activity. Nobody interacts with the IRS because they want to; they do so because they have to, so it is incumbent upon the government to make that interaction as efficient and pain free as possible. Digging out of the current situation will take years. The IRS needs to deliver short-term results, but cannot afford to do so at the expense of the future; this is no easy assignment. It is time for Congress to step up and invest adequate resources in the tax system, rebuilding the IRS over a sustained period.
What about practitioners? My best advice comes down to three points: First, with so many changes in the tax law and the IRS stretched thin, there is more need than ever for close communication with clients, even if the news is uncertain or not what they want to hear. Second, practitioners should recognize that, in any dealings with IRS personnel, the individual you are interacting with is likely under equal or greater stress. Finally, practitioners should actively participate in the political process. In contrast to tax policy, tax administration gets little attention, and less respect, from elected representatives. Speak up forcefully. Congress doesn’t know that the nation’s tax system is crumbling. If you don’t tell them, nobody else will, and it will be too late.