Rettig Praises Biden Proposals for IRS Budget

September 14, 2021

The Honorable Richard E. Neal
Chairman
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515

Dear Chairman Neal,

I appreciate this opportunity to confirm my strong, unequivocal support of the Administration's proposal to provide important, necessary funding to the Internal Revenue Service (IRS). Multi-year, consistent, adequate funding would help us deliver meaningful services to taxpayers, conduct important enforcement initiatives, and support critical long-term information technology (IT) modernization efforts. We remain committed to ensuring that the tax system is enforced fairly, Americans receive the nature and quality of services they deserve and that no one feels safe cheating on their taxes.

The annual gross revenue collected by the IRS is approximately 96% of the gross revenue of the United States. As such, the success of the United States in providing meaningful services and benefits — such as infrastructure and education — depends, in large part, upon the success of the IRS. We interact with more Americans than any other public or private organization. Working together, we must build a more modernized IRS, balancing enhanced taxpayer services with appropriate compliance initiatives. We must earn the trust and respect of every American by providing meaningful support and assistance on behalf of compliant taxpayers while effectively pursuing non-compliant taxpayers.

I am extremely proud of the dedication of our workforce toward helping American taxpayers file accurate tax returns and resolve tax issues. I proudly joined the IRS workforce with the intention of helping to improve tax administration for everyone, and especially those in the most vulnerable, underserved communities. Where possible, we redeploy our limited resources to accommodate the demand for assistance. We have made significant strides forward in our multi-lingual outreach efforts. However, these and other efforts are significantly diminished as we continue to face enormous resource and related challenges.

Like all federal agencies, the IRS is best suited to provide the services Americans deserve and appropriately enforce the tax laws in support of compliant taxpayers when it receives the resources it needs to do so. Resource challenges facing tax administration today are not new. At a time when the IRS has faced consequential resource challenges, it has also been called upon to take on new, significant responsibilities. Our overall response to the unprecedented challenges during the COVID-19 pandemic, in which we have so far delivered more than $826 billion in relief to individuals, illustrates the importance of every American to the IRS, and the importance of the IRS to every American.

Yet, over the course of the last decade, the IRS's budget has decreased by more than 20% in real terms. Because of this decrease, we only expect to support around 74,200 full-time employees (FTEs) this fiscal year — a staffing level nearly identical to the IRS's staffing level in 1973. Since 2010, real Gross Domestic Product has increased by 23%, and the filing population has increased by 14%, while IRS Taxpayer Service FTEs have decreased by 12%, and Enforcement FTEs have decreased by 32%. Every measure that is important to effective tax administration has suffered tremendously.

Today, the IRS's capacity to deliver meaningful customer service is severely diminished, and the IRS lacks the ability to modernize and reduce the dependency on our legacy systems and facilities. Due to staffing shortfalls, the IRS is simply unable to maintain meaningful examination coverage of high-income individuals and complex business structures, despite their outsized contribution to the tax gap.

The estimate for the direct effect of $80 billion in additional resources derived from the revenue estimation model for budget initiatives determined by Treasury's Office of Tax Analysis (OTA), working with IRS Research, Applied Analytics, and Statistics (RAAS), is that it raises about $320 billion in additional tax collection over the course of the next decade, and more than $1 trillion in the following decade. These estimates are based on historical assessment, collection, and productivity rates for IRS enforcement activities. The estimates account for diminishing returns to additional investments in IRS enforcement. However, because the IRS has been so constrained by a decade of budget cuts, we believe that there are significant positive returns across the budget window, and beyond. These estimates also reflect the time required to hire and train new enforcement agents.

These estimates also exclude deterrent effects of increased enforcement activity. Although it can be challenging to measure, in my decades of tax related experience, deterrence based upon visible, robust enforcement activities is both real and significant. These estimates also exclude the important role that improved taxpayer service and guidance play in enhancing voluntary compliance. Return on investment estimates exist only for enforcement activities — not technology or service investments. Providing the IRS the resources it needs to serve more taxpayers, e.g., through taxpayer assistance centers and real-time telephone and digital assistance, can deliver both increased revenues and improved taxpayer morale.

The IRS is in desperate need of funding across all appropriations — Taxpayer Services, Enforcement, Operations Support, and Business Systems Modernization. These funds will “build-back” and revitalize the agency, providing the resources that it needs to pursue meaningful examination and collection activities with respect to complex transactions and high-income taxpayers.

Our ability to enforce the tax laws against non-compliant taxpayers with complex returns should not be governed by a lack of resources. It is unacceptable for our nation's tax administrator to be “outgunned” when appropriately challenging the return positions of some of the most sophisticated taxpayers. This will be the focus of new enforcement efforts: Indeed, the Administration's proposal specifies that audit rates will not rise relative to recent years for taxpayers under $400,000 in actual income.

The Administration's budget proposal will help the IRS modernize existing systems, develop new technological capabilities to improve compliance, respond to taxpayer issues in real-time, and significantly improve the taxpayer experience. Taxpayers will benefit from new and improved ways to interact with the agency, and the IRS' capacity for serving diverse taxpayers across the country will be expanded.

It is important to point out that failures to comply with tax law often involve unintentional mistakes that are the result of not fully understanding what has come to be an extremely complex tax code. For that reason, efforts to increase overall tax compliance and reduce the tax gap absolutely must include efforts to properly assist taxpayers in meeting their filing, reporting and payment obligations, issuance of timely and clear guidance and programs to educate taxpayers in their tax obligations. As we modernize the IRS, we will maintain traditional means of interacting with taxpayers whether in-person or on the phone, and whenever possible, in the language they prefer. Most Americans try to voluntarily comply with their filing and reporting obligations and every IRS employee is committed to helping them do so.

In sum, I cannot stress enough the importance of the Administration's proposal for the IRS to receive multi-year, consistent, significant funding that would help us deliver meaningful services to every American. As someone involved in tax matters for decades, I can confirm that properly funding the IRS will be an absolute game changer for every American.

The IRS does not presently have the tools and resources it needs to support our country. Greater investments in technology can help us properly assist compliant taxpayers, allow us to make better use of the data we already have and that we may receive in the future. Modernization of our systems coupled with technological advances in artificial intelligence, data and analytics will continue to enhance services to compliant taxpayers and make tax avoidance by others more visible and more difficult.

Resource challenges, retirements, implementation of major new federal tax programs and law changes, and the pandemic have placed additional restraints on our limited resources. However, the entire IRS workforce remains dedicated to delivering a fair and equitable tax system that benefits all Americans. Every IRS employee proudly serves our nation; we want to do more and we are hopeful you will continue to help us help others. Congress is presented with a historic opportunity to create a more equitable and efficient tax system that will benefit every American as well as future generations of Americans. Now is the time. . . .

I hope this information is helpful. If you have questions, please contact me, or a member of your staff may contact Amy Klonsky, Chief, National Congressional Affairs Branch, at 202-317-6985.

Sincerely,

Charles P. Rettig