National Taxpayer Advocate: Infusion of New IRS Funding a ‘Gamechanger’ for Taxpayers

Congressional Republicans are starting 2023 with the Internal Revenue Service squarely in their crosshairs. Right before the start of the year, Republicans successfully demanded a 2 percent cut in the agency’s regular appropriations as part of the omnibus spending deal. Then, as a first order of legislative business, the new Republican House majority voted to rescind 90 percent of the IRS’s new funding under last year’s Inflation Reduction Act. As if that wasn’t all bad enough – and it was – then came word that House leadership has agreed to hold a vote this Congress on the so-called “Fair Tax” proposal that would abolish the IRS and shift to a national sales tax.  

Into this fray comes the latest annual report to Congress from the National Taxpayer Advocate. The report, which says taxpayers “experienced more misery in 2022,” shows exactly why the IRS needs more funding.  

The bulk of the IRS’s woes – whether we’re talking about tax enforcement, customer service, or technology – can all be traced back to years of funding cuts. There’s a twisted irony at play here: cutting funding to a public service so deeply that it ceases to provide top-notch service, then using that service degradation as a rationale to cut funding more deeply or axe the service altogether. 

The report from the Taxpayer Advocate – part of an independent oversight arm inside the IRS – found that the agency struggled in 2022 with timely processing of tax returns and refunds (particularly paper returns), responding to taxpayer correspondence quickly (it took an average of 193 days to process taxpayer responses to proposed tax adjustments), and answering phone calls from the public (only 13 percent of the 173 million phone calls to the IRS reached an employee).  

It expects these issues to improve in 2023, thanks in part to the influx of $80 billion in new funding from last year’s Inflation Reduction Act, which the Advocate’s office calls a “gamechanger” for Americans. The funding is wide-ranging, and some has been immediately effective. For example, it has already allowed the IRS to hire 5,000 new customer service people since October to prepare for this year’s tax season. 

“If spent wisely, this funding will give IRS management the tools it needs to bring U.S. tax administration into the 21st century by enabling it to hire and train the workforce of the future, replace antiquated IT systems, and generally revamp the taxpayer experience based on principles of fair and equitable tax administration,” the report says.  

The Taxpayer Advocate report doesn’t discuss the new IRS funding dedicated to tax enforcement, as it is outside that office’s scope of work. But we know that this funding is also desperately needed.

Years of IRS budget cuts have led the agency to take on fewer of the most difficult audits – those of rich people and big corporations – and focus more on easier audits of low- and middle-income people. From 2010 to 2018, when audit rates for everyone fell by 45 percent, the rates fell more sharply for people earning $1 million or more (a 61 percent decline) and large corporations (a 50 percent decline). Meanwhile, the audit rate for low-income working people who received the Earned Income Tax Credit fell by just 40 percent. 

The Taxpayer Advocate reports shines a new light on what we all know whether we’re tax wonks or ordinary Americans: the IRS has a lot of problems. These problems are a direct result of Congressional Republicans’ budget cuts that have led the agency to grapple with staffing shortages and outdated technology that make it hard to serve ordinary taxpayers, whether that’s by ensuring the phones get answered or protecting us all from unscrupulous tax cheats.  

As the report notes, “without sustained, consistent, and dedicated funding, the IRS [will] remain challenged to develop and maintain the workforce and administrative tools necessary to deliver a high quality of customer service that all taxpayers are entitled to.”  

Last year lawmakers put the IRS back on the right path with the Inflation Reduction Act funding. The question now, amidst a bevy of threats, is whether they can keep it there.  

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