IRS — Don’t take another budget cut; spend what you can, and quickly

The House Appropriations Committee released a fiscal 2025 spending bill last week that would cut IRS funding by nearly 18% and zero out money for the new Direct File system.

The proposed bill would allocate the agency only $10.11 billion — a $2.2 billion reduction from the current allotment. The majority of these cuts would likely impede future progress in spite of the hard-fought wins the agency has accomplished this year, including long-overdue tech improvements.

Although intended in part to halt the new direct file tool and preclude increased enforcement, this budget reduction isn’t the first of its kind and won’t be the last. Lawmakers have already cut $20 billion in funding from the Inflation Reduction Act, scaling back the budget even further as part of a larger funding deal to keep the government open and operational.

It’s become clear that the best-laid plans for government agencies are not fool-proof. It’s true that the agency has been given until 2031 to spend its remaining Inflation Reduction Act money, but that budget might not survive another ten years of political squabbling.

The IRS needs to seriously consider making practical investments and changes right now. Chief among them is spending what they can while they still have it.

Amidst the chaos, it pays to remain practical

Time is money. IRS decision-makers should consider how they might best wield their hard-won capital to drive improvements — consequential ones that will be felt through Wall Street, Main Street and every street in America. While the agency has outlined its extensive list of goals in its strategic operating plan, there are a few that should be addressed first, and urgently.

The IRS’ plans to accelerate digitization with things like mobile-friendly document formats are nice, but there are glaring gaps to be addressed first. The agency needs to invest in technology that puts easily impeachable things, like a lingering reliance on microfilm, to bed. Tech that predates disco and other dust-collecting devices has no business serving millions of taxpayers. Initial spending should focus investment and upgrades on tech that actively improves day-to-day interactions between the IRS and the public as much as possible.

For example, the process of collecting tax returns and issuing refunds relies heavily on complicated, ancient IT infrastructure that doesn’t work nearly as well as it should. As of now, for the more than 15 million individual income tax returns still submitted annually on paper, when existing IRS tech cannot successfully capture the data from a return electronically, employees must enter data manually. By doubling down on investing in data ingestion technology or optical character recognition software, the agency could deal with paper documents far more effectively. At present, IRS agents still have to sort over 100 million pieces of mail by hand every year.

This technological progression cannot advance in a vacuum. The agency should also look to quickly hire and better support more staff to handle the constant flow of phone calls, paperwork, data entry, and administrative work that will pile up as modernization kicks in. This means more customer service agents and administrative assistants — the kind of employees whose day-to-day duties include answering the phone, processing returns, and staffing taxpayer assistance centers.

While the government has set salary bands, the agency should also consider investing in IRS talent by offering the best benefits possible and reasonable salaries soon. Adequate wages are the only way the IRS can attract the necessary talent in the short term to stay afloat in the long term. New talent needs to be well-taught, too. Taxpayers and business owners should not need to be experts to access IRS information, and a well-paid, well-trained, informed IRS workforce is well-equipped to address all incoming questions about the minutiae of an increasingly confusing tax code.

Use it or lose it

With a great deal of money comes a great deal of responsibility. The American public, including nonpartisan and very partisan entities, will never be fully happy with any government agency, let alone the IRS. But taxpayers fund every bit of the agency’s work. Customer satisfaction should be the number one priority for the IRS moving ahead, and quick spending now can make that achievable.

The IRS has a steep climb ahead, but its work is already showing promising signs of growth. Their average call wait time was reduced from 28 minutes in 2022 to 3 minutes in 2023, and they answered one million more phone calls this year than last year.

The IRS has the power to make changes that have been necessary since TV was in technicolor. The agency shouldn’t let political bickering slash any more of the money that can turn things around for everyone.

The IRS needs to invest in its future today. IRS, seize this rare opportunity and fast-track your spending now — while you still can.

Hansen Rada is CEO of Tax Guard.

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