Tax Cuts and Jobs Act strains IRS resources

The Tax Cuts and Jobs Act is going to be a "heavy lift" for the IRS, National Taxpayer Advocate Nina Olson has told Congress.

The agency is strapped for cash and already has a huge workload, Olson said in her latest report to Congress. “Shortcuts have become the norm, and shortcuts are incompatible with high-quality tax administration,” Olson told lawmakers. Olson also told lawmakers that refund anticipation loans (RALs) are back after several years of declines.

IRS response

The Tax Cuts and Jobs Act makes countless changes to the Tax Code, impacting individuals, nonprofit organizations, businesses of all types, and more. Nearly all of the changes are effective after 2017. Some changes are permanent. Many are temporary.

Thirty-two years ago, the IRS had a similar task after Congress passed the Tax Reform Act of 1986. Olson described the agency’s work to implement the 1986 law:

  • 162 existing forms changed.
  • 48 new forms developed.
  • 13 new publications created.
  • 1,300 more employees hired.

Olson told Congress that the IRS has not calculated how much money it will need to implement the Tax Cuts and Jobs Act. Last year, the agency estimated it would need additional funding of $495 million in fiscal years (FY) 2018 and 2019. This money would go to updating its computer system, posting new forms and publications, issuing guidance, and training employees, Olson reported.

Comment. In mid-January, Treasury Secretary Steven Mnuchin said that the Trump Administration is talking with Congressional leaders about increasing the IRS’s budget to implement the new tax law. “It’s a massive amount of work for the IRS. The new law touches every single aspect from technology to forms of the IRS. We are speaking with Congress and we would expect to hire a significant number of more people.” Mnuchin did not describe any proposed funding level. In recent years, Congress has approved additional funding for customer service and cybersecurity at the IRS.

Legislative recommendations

Olson also posted a new report: “The Purple Book.” This report highlights 50 legislative recommendations. They include:

  • Enact the Taxpayer Bill of Rights as a freestanding provision in the Internal Revenue Code.
  • Require the IRS to provide annual taxpayer rights training to employees.
  • Authorize the IRS to establish minimum competency standards for return preparers.
  • Harmonize reporting requirements for taxpayers reporting under FBAR and FATCA.
  • Limit the IRS math error authority to categories specified by statute.
  • Provide collection due process rights to third parties holding legal title to property subject to IRS collection actions.
  • Require the IRS to address the National Taxpayer Advocate’s comments in final rules.

Top 10 litigation issues

As in past years, Olson identified the top 10 litigated issues:

  1. Accuracy-related penalties
  2. Trade or business expenses
  3. Summons enforcement
  4. Appeals from Collection Due Process (CDP) hearings
  5. Gross income determinations
  6. Failure to file penalty and pay penalties
  7. Civil actions to enforce federal tax liens or to subject property to payment of tax
  8. Charitable contribution deductions.
  9. Family status issues
  10. “Innocent spouse” relief from joint and several liability