IRS commissioner says IT modernization underfunded, will take longer than envisioned

The IRS, while gearing up for next year’s tax filing season, is still wrapping up the current filing season.

IRS Commissioner Chuck Rettig told members of the House Ways and Means Committee that the agency has accelerated programming and “health testing” for IT systems, and that the agency remains at least a month ahead of schedule for next season’s preparations.

The agency, he said, sped up this work in part because of uncertainty over whether Congress would pass a comprehensive fiscal 2021 budget before a continuing resolution expires on Dec. 11.

On the advice of the agency’s acting chief information officer, Rettig said he’s “cautiously optimistic” that next year’s filing season will open on time either in late January or early February. But the agency, after more than a decade of budget cuts, has been pushed to its limits. In addition to carrying out the longest tax filing season, it’s handled more than 160 million Economic Impact Payments under the CARES Act.

“The IRS response serves to illustrate how critical it is for the agency to receive consistent, timely and adequate multi-year funding such that we can succeed in providing the services that our country and our citizens so rightly deserve,” Rettig said.

The agency has about a million unprocessed returns in its inventory and a mail backlog of about 3 million pieces. It also has 6.8 million returns currently in process that will soon be completed.

The IRS has brought thousands of employees back to the office in a phased reopening across the country, but a record number of employees continue to telework. Rettig said a record 59,000 employees were teleworking this week. The agency has offered employees who process tax returns overtime and weekend work to keep up with demand.

Rettig said the agency reopened facilities while meeting state and local guidelines and had a “COVID czar” that reached out to tax authorities around the world about what they were doing to lessen the burden on their employees.

The IRS since 2010 has seen its workforce shrink by about 17,000 fewer employees — a 22% reduction. Those cuts have been felt more acutely in enforcement, where the agency has seen a 35% reduction in revenue agents and a 45% reduction in audits. Members of the committee have called on Rettig to beef up enforcement, because for every dollar invested in the IRS budget, the agency collects up to $7. However, Rettig said the agency is stretched thin in many of its operations.

“A visible enforcement effort is significant in terms of creating deterrents on the outside. I’ve used the terminology that we need to be in every neighborhood. Unfortunately, we have had, say, 15 priorities, each of which costs a dollar to get off the ground. And we have one dollar,” Rettig said.

The IRS launched a six-year modernization plan in April 2019, but during the first two years of that plan, the funding has been about half of what the IRS requested. Rettig said because of these setbacks, the modernization will take longer than six years and cost more than double what was first envisioned.

The revolving Technology Modernization Fund since 2017 has provided loans to agencies for multi-year IT upgrades. At this point, six agencies that accepted loans have accelerated work to modernize legacy systems and are paying back the loan to the TMF Board.

The IRS, however, continues to receive its modernization funding through annual congressional appropriations, even though Rettig told has told lawmakers that multi-year funding would allow the agency to move ahead with its IT overhaul with fewer hiccups.

“We get knowledge of a number and we gear up, and often we get it late in the year and we can’t actually implement the number by the close of that year, and we have to deal with the funding, and then we start it over again next year. It’s very difficult for us,” he said.

In order to modernize the agency’s systems, Rettig told the committee that the IT modernization would cost between $6-7 billion in multi-year funding. About a third of that money, he said, would be spent on existing legacy systems. That level of spending on legacy systems, he added, is not unusual, considering that the agency already spends billions annually on operations and maintenance.

“It’s not an IRS-alone project in terms of modernization, and I would include Congress in that same feature. We’re in it together,” Rettig said.

Rettig offered to brief members of the committee with an update on IT moderation, as well as briefings later this year or early next year on steps to implement the Taxpayer First Act.

Rettig told committee members that he intends to finish his term, which expires in November 2022. Under questioning by Rep. Bill Pascrell (D-N.J.), the oversight subcommittee chairman, Rettig said he serves at the pleasure of the president, but wouldn’t “pro-offer” his resignation to President-elect Joe Biden.

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