Taxpayer advocate urges Congress to reconsider $80 billion IRS funding boost

The office within the IRS that advocates on behalf of regular taxpayers says the $80 billion funding boost for the agency passed last year is skewed too much toward enforcement and audits and not enough toward helping people file their taxes.

Of the funding provided by Congress to the IRS over the next decade as part of Democrats’ Inflation Reduction Act (IRA), $45.6 billion is set to go toward pursuing tax cheats with more audits and additional enforcement measures. The second biggest chunk of $25.3 billion is going toward general operation support.

Only $3.2 billion is going to taxpayer services, which is the segment meant to help the IRS answer questions over the phone and deliver more reliable service. And only $4.8 billion is being given to the IRS to update its technology, which is famously out of date.

Ahead of a more detailed breakdown of the allotments that Treasury Secretary Janet Yellen said on Thursday would be coming in the next few weeks, the Taxpayer Advocate is saying these numbers don’t make sense for families and businesses.

“The IRA allocated the funds in a manner that does not address the needs of U.S. taxpayers, including individuals, families, and businesses,” advocate Erin Collins wrote in a blog post on Thursday.

“The top tax administration priority now should be to improve taxpayer service, particularly after the struggles of the last few years, and to do that, the IRS needs more funding in the taxpayer services and [business systems modernization] accounts,” she wrote.

The Taxpayer Advocate may make recommendations to Congress but cannot change policy.

Republicans have been up in arms about the funding boost for the IRS, in general, as well as the relatively small amount reserved for taxpayer services, compared to the enforcement and operational budgets.

“Only $3.2 billion — under four percent — of the IRS funding influx will be dedicated to taxpayer services. Given Americans have long dealt with abysmal IRS service, the ‘pauper’s sum’ for fixing IRS’s customer service is indefensible. It lays bare that my Democratic colleagues have less concern about poor IRS service and utmost interest in the IRS squeezing more money from American taxpayers,” Senate Finance Committee ranking member Mike Crapo (R-Idaho) wrote in an op-ed last fall.

“I would say that anything that’s not used directly for taxpayer services, any dollars that don’t go into taxpayer services, ought to be frozen, frozen in place until the IRS submits a plan,” Senate Finance Committee member John Thune (R-S.D.) said last month.

The Democrats’ rationale behind the new funding for enforcement is that most of the money that the government is owed every year but isn’t able to collect — a sum known as the “tax gap” — is stashed away in individual business income accounts that require well-trained auditors to be able to collect.

The tax gap totaled around $428 billion a year between 2014 and 2016 — the last time it was comprehensively measured by the IRS. Of that amount, uncollected individual income tax totaled $278 billion and the largest segment of that was in business income at $130 billion.

While it’s important to the IRS to collect more of the money that’s owed to the government, the remarks made Thursday by the taxpayer advocate indicate that that priority needs to be balanced with an acceptable level of service to tax filers.

“The additional funding provided by the IRA, while appreciated and welcomed, is disproportionately allocated for enforcement activities and should be reallocated to achieve a better balance with taxpayer service needs and IT modernization. We need to put taxpayers first,” Collins wrote.