IRS asks for more funds to implement new tax law

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The Internal Revenue Service’s acting commissioner, David Kautter, testified at a Senate Finance Committee budget hearing asking for nearly $400 million in additional funds to help the IRS administer the Tax Cuts and Jobs Act.

“This piece of legislation was the first major tax reform legislation in more than 30 years,” he said in his written testimony Wednesday. “With hundreds of provisions intended to provide relief to American families and make America’s businesses more competitive, the new law will require extensive work by the IRS in calendar years 2018 and 2019 to serve the needs of both taxpayers and tax professionals. It is crucial that the IRS receive additional funding this fiscal year to avoid any disruptions during next year’s tax filing season.”

The Trump administration’s fiscal year 2019 budget requests $11.135 billion for the IRS, which would reduce the IRS budget by $23.7 million and cut the equivalent of 2,163 full-time employees compared to the fiscal year 2018 level under Congress’s continuing resolution.

Kautter noted that implementing the Tax Cuts and Jobs Act is one of the IRS’s highest priorities. “The IRS has established a Tax Reform Implementation Office, led by one of its most senior leaders, to ensure its successful administration,” he said.

Preliminary efforts to implement the new law are already underway, including some important pieces of guidance related to foreign business income and withholding tables.

“Additional published guidance on the new tax law will be provided as the IRS continues to analyze the law and its impact on tax administration,” said Kautter.

Earlier this month, the IRS and the Treasury Department issued a revised Priority Guidance Plan that includes projects related to the new tax law, he noted. But he is asking for additional funding and staff. “To ensure successful implementation, the IRS will need additional resources in FY 2018,” said Kautter. “After considering FTE staffing needs and non-labor costs, preliminary estimates indicate the IRS would need at least $397 million to implement tax reform. This funding is needed immediately to ensure that the IRS can start critical implementation activities on time. The funding should be available for two years to ensure contracts can be let appropriately and resources are available throughout the critical testing period of September through December of the calendar year, the first quarter of FY 2019.”

The IRS will need to reprogram approximately 140 interrelated return processing systems, and create or revise approximately 450 tax forms, publications and instructions. It will also need the money to publish guidance, notices, and answers to frequently asked questions, as well as prepare IRS employees to help taxpayers understand how the new law applies to them, and provide taxpayer assistance and outreach.

Of the $397 million, $291 million would go toward updating information technology systems; $75 million for taxpayer assistance, education and outreach; $3 million for revising and creating tax forms, instructions and publications; $15 million for developing and issuing published guidance and notices; $8 million for tax and information returns processing; and $5 million for program management.

The administration’s budget request already provides extra money for cyber security after a series of high-profile security breaches in recent years at the IRS, along with money for replacing the IRS’s outdated computer hardware, some of which dates back to the Kennedy administration.

Lawmakers acknowledged that the new tax law will require extra effort from the IRS to implement. “We still have a great deal of work to do to ensure that the tax law is implemented correctly,” said Senate Finance Committee chairman Orrin Hatch, R-Utah, in his opening statement. “The Treasury Department, IRS, and Congress—especially the tax writing committees—have to work together to ensure that the law is implemented and administered as Congress intended. We look forward to working with the administration, and with IRS specifically, as they continue to implement this law and issue guidance.”

Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, agreed with Kautter that the IRS will need the extra funds. “The IRS said it would need nearly $400 million to implement the new law, but the Trump budget held the agency’s funding flat,” he said. “The budget makes a fake reference to increasing enforcement dollars, but it kicks the actual decision to appropriators in Congress who are unlikely to fork over the necessary resources. And that comes at a time when tax cheats are looking at the Trump tax law and licking their chops, planning complicated new schemes of abusing the rules to get out of paying their fair share. Particularly with the new pass-through loophole, the law is an open invitation for scamsters to game the system, leaving a heavier burden for Americans who do follow the rules.”

Kautter reported that the tax season this year began on schedule on January 29 and is going well so far. While he is currently the acting commissioner at the IRS, Kautter is also Assistant Secretary of the Treasury for Tax Policy. Earlier this month, President Trump nominated tax attorney Charles Rettig to be the full commissioner, succeeding John Koskinen, whose term ended last November. Rettig’s nomination will be subject to Senate confirmation.

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Trump tax plan Tax reform Donald Trump Orrin Hatch Ron Wyden IRS