Beefier IRS gets endorsements as funding hangs in the balance

Support is coming in for a bigger and stronger IRS souped up by Democrats, even as Republican suspicion toward the agency threatens to undercut its overhaul.

Lawyers with the American Bar Association (ABA) and government workers with the Treasury Department union have given a thumbs up to the renovation, made possible with an initial funding boost of $80 billion in Democrats’ Inflation Reduction Act passed one year ago.

“The ABA appreciates the efforts of Congress and the President in securing significantly increased funding for the [IRS] over the next 10 years in the Inflation Reduction Act,” C. Wells Hall, the chair of the ABA’s tax division, wrote in a letter to top appropriators at the end of last month.

National Treasury Employees Union (NTEU) president Doreen Greenwald said the new funding will help reduce the national deficit by going after what the government is owed in tax revenue but doesn’t collect. 

U.S. debt levels are now at 120 percent of annual gross domestic product and were a factor in a controversial downgrade in U.S. creditworthiness earlier this month by ratings agency Fitch.

“NTEU urges Congress not to lose this momentum by maintaining the annual appropriations the agency needs for regular operations, in addition to the [Inflation Reduction Act] investments that target customer service, modernized technology and improved enforcement,” Greenwald said in a statement on Tuesday.

Fitch Ratings said it’s not expecting any major deficit reduction to happen ahead of the 2024 election, although the U.S. debt-to-GDP (gross domestic product) ratio has been declining since it peaked in 2020 as a result of big pandemic-related spending packages.

A renovation on shifting sands

While the funding boost is resulting in systems modernization and thousands of new hires at the IRS along with enthusiasm within the ranks of the agency, its future is uncertain amid strong Republican opposition.

Upon retaking the House in January, Republicans immediately voted to rescind the funds in a bill that had no chance of making it through the Senate.

Then in May as part of a vague, unwritten agreement to raise the national debt ceiling, the GOP and Democratis agreed to take away about $20 billion from the agency in annual appropriations, effectively reducing the initial $80 billion by a quarter.

Similar wheeling and dealing could happen ahead of a September 30 deadline to fund the government, out of which a continuing resolution is likely to emerge, keeping agencies running through December.

Then the threat of across-the-board spending cuts that are dreaded by both parties and are built into the debt ceiling deal is likely to force another fiscal cliff showdown around the winter holidays.

“I hope that my Republican colleagues on the House Appropriations Committee will work with Democrats to ensure the IRS has the resources they need to effectively carry out their responsibilities and serve the American taxpayers,” Democratic House appropriator Steny Hoyer told The Hill.

Entrenched Republican opposition

But Republican ire over the IRS overhaul runs deep. Republicans say the IRS’ plan for spending the money is insufficient.

“If this is a ‘plan,’ why does it omit how many employees the agency seeks to hire over ten years, fail to identify target audit rates for taxpayers, and lack specific details about how the money will be spent beyond the next two years?” Ways and Means Committee Chairman Jason Smith (R-Mo.) said in April. 

“Congress must exercise robust and aggressive oversight,” Senate Finance Committee member Chuck Grassley (R-Iowa) said in regard to the new funding at the end of last year.

The endorsements for the IRS's funding boost recognize this opposition and the negotiations that lie ahead.

“We appreciate the budgetary challenges facing the Congress,” the ABA’s C. Wells Hall wrote to Sens. Chris van Hollen (D-Md.) and Bill Hagerty (R-Tenn.) and Reps. Steny Hoyer and Steve Womack (R-Ark.)

Will lawyers play along?

But the extent to which the legal world actually cooperates with the new direction from the IRS could be a significant factor in whether its drive to go after wealthy tax cheats and collect more in owed revenue is actually successful.

Custom-built tax dodges that navigate esoteric paths through the vast U.S. tax code and are further obscured in a forest of international tax havens are often the specific product sold by law and accounting firms to their rich clients.

They can be augmented by exploiting bureaucratic processes, such as running out the clock on deadlines until cases get forgotten about or delayed indefinitely.

U.K.-based organization Tax Justice Network estimates that $5 trillion will be lost globally over the next decade to multinational corporations and wealthy individuals using tax havens.

“[Large business and international] taxpayers are going to have a busy time in a couple of years. [High net worth] families are also in their sights,” Rob Kovacev of the law firm Miller and Chevalier said in a statement sent to The Hill earlier this year.