About the Author: Mark W Everson He is the Vice President of AlliantGroup, a provider of specialized tax services. He served as the IRS Commissioner from 2003 to 2007.
The Internal Revenue Service finds itself full of money, an unfamiliar situation. Persistent operational problems at the agency and controversial enforcement provisions in the narrowly passed Inflation Reduction Act put the IRS under the microscope and in the middle of America’s rough politics. The agency would be required to execute its responsibilities under the law almost flawlessly, avoiding serious harm to the tax administration and less confidence in the government.
I have looked after the tax system of the country. I believe a fair and efficient IRS is essential to our democracy. I also support additional funding for the service—albeit far below the levels currently provided.
The balance between enforcement and service is badly tilted in the new law. Enforcement gets 14 times more funding. Treasury Secretary Janet Yellen has instructed the IRS to make it a priority to restore taxpayer services and eliminate their wasted backlog of unprocessed returns. Efforts to reduce the backlog have been insufficient. Service management is empowered to delegate work under its union agreement and immediately deploy additional teams of operational personnel to processing centers when the details are rolled out two to three weeks, returning to work and responding to correspondence with other duties. Only then will telephone inquiries drop to manageable levels.
I would advise the secretary to add a comprehensive report on data protection to IRS Short-Term Deliverables. When the implementation plan it requested is due in February, it will be twenty months after the ProPublica breach. The news organization published details of confidential tax documents belonging to thousands of Americans. Spending any of the billions provided to improve the system housing taxpayer data before the IRS explains what led to the catastrophic leak and how the government would prevent similar incidents would be irresponsible. The recent disclosure of another important data problem only underscores the urgency of the matter.
Now is not the time to experiment with an untested organizational structure in the IRS. The service should establish a small office for implementation planning, coordination and monitoring, but leave on line reporting to existing program and support units so that they are their own, rather than competing with construction. The four established business-conducting divisions remain. They are also appropriate places for key constituencies to resolve tensions between taxpayer services and enforcement, which would be an ongoing problem given the disparate resources. The current two-deputy structure poses challenges ahead, one with the building infrastructure while the other drives the program performance.
The tax system has three components: the government, the taxpayer and the businessmen. Government relations with physicians have become strained, with the IRS giving less time to outside input. One flashpoint was its refusal to extend estimated payments for first quarter 2021 when it delayed the April 15 annual filing deadline. The IRS has tough-armed businessmen, even as he and taxpayer advocates have expressed concerns about the impact of procrastination and inaction on small businesses and individual taxpayers. The government needs to rethink its approach to dealing with physicians who play a vital role in assuring the taxpayers of law-abiding.
The confluence of politics with tax policy and tax administration is harming public acceptance of tax collection. Wires jumped in tax administration during the president’s April 2021 pledge to “no tax hikes on people earning less than $400,000” legislative debate, This encumbrance is now reflected in Secretary Yellen’s directive that any new money given to the IRS will not be used to increase audits on small businesses or individuals below the $400,000 threshold “relative to historical levels.” In fiscal year 2006, my last full year in the IRS, audit coverage for individuals was five times 2019 levels. There is still a lot of room for growth in directive-abiding enforcement. Americans have a right to know what is being promised. To draw this line by going beyond the law is absolutely disturbing. The IRS can only maintain a public trust if it enforces the law in writing, not selectively.
Americans expect non-partisanship from the IRS, as they do from the FBI and CIA. Over the years the IRS has enjoyed relative independence. That dynamic is changing. The Trump administration gave the White House oversight of writing tax rules, reversing a practice since the Reagan administration, which had placed the process within the Treasury. A senior Treasury political appointee served as acting commissioner for almost a year, rather than a career agency officer. I cannot point to the real problems with these arrangements, but they paved the way for more linking of tax administration with policy and politics.
In this administration, the Treasury store most closely associated with the Tax Compliance Initiative (described by some as overseeing the IRS) has been the Office of Economic Policy. The new law provides $50 million to departmental offices to “monitor” IRS actions enforcing the new law. Biden Treasury should be sure and is advised to keep a certain distance from the IRS. As I suspect it is already learning, the closer the administration gets to the agency, the more problems in the service that cling to it.
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