National Taxpayer Advocate (“NTA”) Nina Olson released her annual report to Congress, focusing on the implementation of the new GOP tax law. In her report, Olson warned that a 20 percent reduction in the agency’s budget in FY 2010 has challenged the agency’s ability to perform the basic tasks of administering the tax system.

“As the National Taxpayer Advocate, I see daily the consequences of reduced funding,” Olson wrote. Budget reductions have rendered the IRS unable to: (1) provide acceptable levels of taxpayer service; (2) update its technology to improve its efficiency and effectiveness; and (3) maintain compliance programs that protect taxpayer rights. Olson concluded that “shortcuts” have become the norm, and this is incompatible with high-quality tax administration.

Despite pushing for additional funds for the IRS, Olson also expressed concerns that the agency at times has been too quick to cite funding constraints as a basis for inaction. “Limited resources cannot be used as an all-purpose excuse for mediocrity,” Olson noted. Despite the agency’s limitations, there are still steps it can take to improve taxpayer service through creativity and innovation.

In the coming months, the IRS will face major tax reform-related implementation challenges. This includes:

  • programming and systems updates;
  • answering taxpayer phone calls and providing other taxpayer services;
  • drafting and publishing new forms and publications;
  • revising regulations and issuing other guidance;
  • training employees on the new law and guidance; and
  • developing systems to verify compliance with new eligibility and documentation requirements.

The IRS has initially estimated that implementing the new tax law will require an extra $495 million in funding for 2018 and 2019. At the time it developed this preliminary cost estimate, the IRS had identified 131 filing season systems that will be impacted by the new tax law. Specifically, the systems must be modified to reflect:

  • new individual and business tax rates;
  • inflation-indexing changes for deductions and credits;
  • phase-out changes for certain tax benefits;
  • repeal of certain tax benefits; and
  • changes that will require updates to the IRS’s fraud-detection filters.

It remains unclear as to whether the GOP will adequately fund the IRS in FY 2018. Several former GOP lawmakers have joined the chorus of voices warning Congress that if it doesn’t increase funding, the IRS may be in dire straits.