The Republican tax law has created massive new obligations for an Internal Revenue Service already struggling “to perform the basic tasks of administering the tax system” because of recent budget cuts, according to an internal agency report released Wednesday.
The national taxpayer advocate, an independent official within the IRS, will tell Congress that early estimates suggest the tax collectors need at least $495 million in 2018 and 2019 to meet the new obligations created by the GOP tax law, which President Trump signed in late December. The law has already created a new workload for the IRS — from training employees in the new system, to updating 131 federal filing systems, to answering an explosion of phone calls from taxpayers hoping for guidance.
“The IRS will have its hands full in implementing the new law,” said Nina E. Olson, the taxpayer advocate, according to a news release. “The IRS will have a lot of issues to work through, and taxpayers will have a lot of questions.”
Funding for the IRS has fallen by about 20 percent, accounting for inflation, since 2010. Before the law’s passage, the IRS expected to be able to answer only 60 percent of the routed calls from the 100 million calls it receives from taxpayers — a burden expected to increase under the new law. Since 2014, the agency has stopped answering anything beyond “basic” questions from taxpayers during filing season.
Republicans have said their tax law will streamline and simplify the U.S. tax code, in part by increasing the number of Americans who claim the standard deduction on their income taxes. But the new law already created confusion about its implementation in late December, when taxpayers in several states rushed to try to prepay their 2018 property taxes in the hopes of avoiding the new cap on the state and local tax deduction. That uncertainty led the IRS to put out guidelines about who could and could not plan on deducting their property taxes ahead of time.
The taxpayer advocate appears to expect similar challenges to emerge over the next several months. The tax law cut the mortgage interest deduction from $1 million to $750,000, but provides an exception for some loans closed after Dec. 15, 2017. Yet the IRS does not have access to dates of mortgage closings.
Experts warned before the law’s passage that it could trigger confusion in the tax system. “Making massive changes to the system with an unconscionably short lead time is a recipe for disaster,” wrote the American Payroll Association in a letter to Congress shortly before the law passed.
The report noted that previous tax legislation also caused big spikes in the agency’s workload. The 1986 tax overhaul signed by President Ronald Reagan, for instance, led the IRS to hire an additional 1,300 staff members and increase the number of phone calls it answered by 30 percent. The 2008 stimulus bill prompted a 125 percent increase in the number of incoming calls.
A similar impact is expected from the GOP tax law. Over the course of 2017, however, the IRS lost 6,801 permanent staffers.