IRS budget should be restored - Tax Executives Institute IRS Administrative Affairs Committee

Tax Executive, The, July-August, 1996

On July 1, 1996, Tax Executives Institute submitted the following comments to the Senate Committee on Appropriations concerning the Internal Revenue Service's budget for fiscal year 1997. (A similar letter was sent to the House Appropriations Committee during that committee's deliberations on the budget.) TEI's comments were prepared under the aegis of the Institute's IRS Administrative Affairs Committee, whose chair is Robert L. Ashby of Northern Telecom Inc.

As President of Tax Executives Institute, I am writing to express the Institute's serious concerns about the decision of the House Appropriations Committee to significantly reduce the fiscal 1997 budget for the Internal Revenue Service, and to urge the Senate to restore the cut funds. TEI is the professional association of in-house tax professionals, with our 5,000 members representing the largest 2,700 companies in North America. Our members deal with the IRS on a daily basis, and although they are frequently involved in tax disputes with the agency, they are committed to maintaining a tax system that works and appreciate that this is a goal that the IRS shares. Regrettably, the House Appropriations Committee's decision last month to cut the IRS's budget imperils the agency's ability to attain this common goal. Unless the cut funds are restored, the loser will likely be the Nation as a whole.

"Maintaining a tax system that works" requires not only effective congressional oversight and an insistence on agency accountability, but also the commitment of adequate funds to get the job done. Even though no one likes to pay taxes, the orderly collection of taxes and the efficient administration of the tax system are in the best interest of the entire country. What is not needed is an unseemly and undeserved vendetta against the agency charged with enforcing the tax laws Congress enacts. To be sure, there are flaws in the current system, and there are design and management problems that must addressed. But we believe it is both shortsighted and foolhardy to hamstring the IRS's ability to correct those flaws and perform its core functions by cutting essential programs. Quite candidly, we also question the propriety of the House Appropriations Committee's including substantive tax measures in the budget, most particularly the proscription on the IRS's involvement in "the development of tax policy issues."

Finally, we must express our deep regret over the savage "IRS bashing" that has characterized too much of the recent debate over the IRS's budget. The impudent attacks on the tax agency's legitimacy cannot help but undermine public confidence in the tax system's fairness and thereby impair the IRS's ability to do its job -- again, the job Congress has given it to do.

Tax Executives Institute is committed to an effective system of federal tax administration. We strongly believe that the IRS should receive funding sufficient to advance its goals of reducing taxpayer burdens, improving voluntary compliance, and attaining productivity gains. Clearly, too, the IRS should be both held accountable for its shortcomings and commended for its successes in reducing taxpayer burden and otherwise improving the tax system. Hence, we believe the concerns about the design, management, and implementation of Tax Systems Modernization (TSM) need to be forthrightly addressed. We also think the agency should be encouraged to take additional steps to enhance voluntary compliance while vigorously pursuing its examination, collection, and criminal investigation activities. These activities require a tremendous commitment of resources. To defer or reduce expenditures because of frustration with the implementation of TSM or other programs -- while understandable -- will only delay the day of reckoning. Indeed, we fear that inadequate funding of the IRS may exacerbate the current level of taxpayer frustration with the tax system.

Finally, given the current debate over tax reform, TEI believes it is important to understand that whatever the tax system of the future looks like, its orderly administration will be dependent on the receipt, analysis, and utilization of information submitted by taxpayers and other sources. It is unfathomable to think that the IRS's current system, which was built in the 1960s using 1950s' technology, can carry us into the new millennium. Thus, while vigilant oversight is essential, Congress should not withhold financial support for the modernization effort. Myriad options lie before the country, but standing pat should not be one of them. Congress must move forward to replace the patchwork computer system of the 1960s and enable the IRS to meet the challenges of the next century. We hence agree with Chairman Archer of the House Ways and Means Committee that the budget cuts approved by the House Appropriations Committee are at once ill-timed and excessive. They come at a time when the IRS is making significant strides to address the challenge of TSM. And they do more than cut into the tax system's muscle; they cut into its bone. We fear that they could do serious harm to the country and, accordingly, we strongly recommend that they be reversed.