Improving the IRS Through Budget Revamp and Increased Funding for Taxpayer Services and IT Modernization

Improving the IRS Through Budget Revamp and Increased Funding for Taxpayer Services and IT Modernization

Congress controls the budget of the Internal Revenue Service (IRS) by dividing its annual appropriation into four accounts: Taxpayer Services, Enforcement, Operations Support, and Business Systems Modernization. The IRS is generally not allowed to reallocate its funding among these accounts, with limited exceptions. Under the Congressional Budget and Impoundment Control Act of 1974, the federal budget process is generally a zero-sum game, meaning that a dollar allocated to one agency or program leaves one less dollar available for allocation to another agency or program. However, Congress can authorize a “program integrity allocation adjustment” (PIAA) which allows it to provide additional funding to the IRS for enforcement initiatives that are projected to generate a positive return on investment. PIAAs have not been authorized since 2010, but almost every administration’s budget proposal has requested one.

There are several reasons why changes may be needed to the Internal Revenue Service (IRS). According to its mission statement, the IRS’s goal is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.” However, since 2010, the IRS budget has been reduced by nearly 20% after adjusting for inflation, leading to a decline in its ability to provide top quality service and enforce the law fairly. In addition, the IRS’s information technology (IT) systems are outdated and in need of upgrades. These outdated systems limit the functionality of online taxpayer accounts, prevent taxpayers from obtaining full details about the status of their cases, and hinder the IRS’s ability to select the best cases for compliance actions. To address these issues, the IRS has developed a plan called the “Integrated Modernization Business Plan”, which aims to replace its outdated systems with modern technology. However, this plan will require significant additional funding, estimated at between $2.3 billion and $2.7 billion over the next six years. Congress may need to provide the IRS with more stable and predictable funding for the Business Systems Modernization (BSM) account, which is responsible for upgrading the agency’s IT systems, and allow the IRS to reallocate funds among its accounts as needed in order to address these issues and improve its services.