The IRS had $1 billion worth of carefully considered modernization projects ready to go when it was forced to scuttle those plans to deal with its backlog instead, according to the Treasury Inspector General for Tax Administration.
The agency was granted $1.8 billion in additional funding for fiscal 2021 through 2023 as part of the American Rescue Plan Act, which was enacted in March 2021. Of that, $1 billion was for IT modernization efforts, and according to a TIGTA report released September 7, the agency appears to have jumped through all the right procedural hoops.
TIGTA found that IT leadership within the IRS developed comprehensive plans for what projects it wanted to do and how to do them, collaborated with other leaders in the agency when selecting projects, briefed various stakeholders in the tax administration process, and obtained all the necessary approvals.
However, the report notes that in the second quarter of fiscal 2022, roughly $400 million of that funding had to be reallocated to help the IRS get a handle on its taxpayer service backlog and to make up for a “significant deficit” in its operations budget. As a result, the agency had to revisit its modernization plans and halt progress on many of the projects, according to the report.
The IRS has been faced with an enormous paper backlog, forcing it to temporarily reassign employees from other functions like customer service to focus on processing tax returns and other mail. In doing so, its level of taxpayer service on the phone has plunged.
TIGTA acknowledged that it was too soon to determine if the ARPA funds would have been handled effectively, but it noted that the IRS’s efforts to actively engage relevant stakeholders are essential factors in successfully investing in information technology in general. “This, in part, may signify a well-planned program,” the report concluded.
Just in Time
To some observers, the report highlights the role that inconsistent funding plays in undermining the IRS's work.
Jeffery S. Trinca of Van Scoyoc Associates told Tax Notes the report shows “the tendency to rob Peter to pay Paul” whenever there’s a crisis at the IRS or the agency is given more tasks. “An underfunded IRS was always scuttling long-term plans to pay for a short-term crisis,” he said.
TIGTA’s report includes complaints by the IRS that the ARPA funds couldn't be used after fiscal 2023, and the agency emphasized that it needed consistent, predictable, longer-term funding to meet some of its larger modernization initiatives.
In an August 15 response to the report, IRS Chief Information Officer Nancy A. Sieger wrote that the ARPA funds still enabled the IRS to modernize in some areas and allowed it to provide for “positive impacts on taxpayers and their experiences with IRS, even though some funds were reallocated.” Still, longer-term, mandatory funding is critical for the IRS to be able to modernize over time without interruptions and delays, she said.
One day later, President Biden signed into law the Inflation Reduction Act (P.L. 117-169), providing the IRS with nearly $80 billion in added funding over the next 10 years, of which $4.75 billion is specifically allotted for business systems modernization.
TIGTA’s report puts a spotlight on yet another example of the agency being forced to shuffle resources from one crucial activity to another even more urgent area, observed Chye-Ching Huang of the New York University Tax Law Center. “This is part of the cycle that happens when an agency doesn’t have enough stable funding to do all its basic functions at once,” she said.
The additional, 10-year funding in the Inflation Reduction Act will allow the IRS to invest in taxpayer services without having to shortchange IT projects or other critical agency needs, Huang said.
Although the act provides the $80 billion for 10 years, future Congresses could erase some or all of that amount, or they could shortchange the IRS’s budget in annual appropriations to compensate for the extra funds it now has. That would be a mistake, Huang insisted; instead, lawmakers should “continue to provide a robust base funding for all functions.”
Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.