Republican-led House oversight subcommittee, House colleagues urge IRS reform

Republican members of the U.S. House Ways and Means Oversight Subcommittee and House colleagues with bills to support the cause, this week outlined their essential reforms for the Internal Revenue Service (IRS).

During the subcommittee’s Jan. 30 Member Day Hearing, entitled “Legislation to Improve Tax Administration,” House lawmakers chastised the IRS for ongoing budget blunders, outdated and subsequently improperly updated technology, and customer service failures that have left American taxpayers scoffing with distrust.

“I know the relationship between the IRS and taxpayers can be strained, particularly as taxpayers try to understand their tax liability and the IRS struggles to communicate and provide help,” said U.S. Rep. Lynn Jenkins (R-KS), the new subcommittee chairman and a CPA, who said she wants to restore the relationship between the two.

That’s not going to be easy, according to subcommittee member U.S. Rep. Jackie Walorski (R-IN), who said a trust gap exists between American taxpayers and the IRS. “It didn’t open up overnight and it won’t be closed overnight either,” Walorski said, “but we absolutely have to fix it.”

Other GOP members of the House Ways and Means Oversight Subcommittee include U.S. Reps. Carlos Curbelo of Florida, Mike Bishop of Michigan, Tom Reed of New York, Darin LaHood of Illinois, and David Schweikert of Arizona.

In explaining how the trust gap came to be, Walorski provided examples from the U.S. Treasury Inspector General for Tax Administration (TIGTA), which conducted a 2017 report that found the IRS essentially purchased an incorrect software product for a project it ended up pausing due to a lack of funds and staff. Another TIGTA report found the IRS wasted $12 million on an email system that turned out to be one it couldn’t use, Walorski said. Again, TIGTA found that the IRS bought it first without determining project infrastructure needs nor other technological feasibilities, the congresswoman said.

“There is a clear, critical and urgent need for the IRS to fundamentally overhaul its IT systems, but repeated mistakes, big and small, undermine our trust that they’ll get it right,” said Walorski, who called for more accountability, better contracting practices, and an established strategic vision that includes long-range planning.

Some of the reforms can be legislative, Walorski said, but some of it is a cultural shift that’s going to be up to the next IRS commissioner to handle and, “I hope it will be a priority.”

U.S. Rep. Mike Bishop (R-MI) echoed Walorski’s frustration with the aging technology and IT systems used by the IRS; he said they date back to the Kennedy administration.

“I am continuously amazed and shocked to hear about its archaic technology and infrastructure and how much we need to do to ensure that the IRS is pulled into the 21st century,” said subcommittee member Bishop, adding that it’s imperative for members to figure out how to help the IRS improve its technological capabilities, particularly regarding the distribution of refunds.

Rep. Bishop explained that during the 2016 tax filing season, the IRS issued more than 104 million refunds, paying $1 each to process 19 million of them as paper checks. “The process electronically costs mere cents,” he said. “The potential savings, therefore, are abundantly clear.”

At the same time, Bishop said, many taxpayers who receive paper checks don’t have access to a bank or credit union and resort to paying check cashing companies, which typically charge substantial service fees, thereby reducing their refunds. Enhancing electronic refunds would cut government costs and “most importantly, taxpayers would be able to keep more of their refunds,” Bishop said. Electronic refunds are also quicker and more secure to issue, he added.

Rep. Bishop said he’s working on related legislation that he hopes can be included in a final legislative package and he entered into the record comments from the Electronic Transactions Association, an organization representing more than 500 companies that said it supports helping the IRS improve its electronic capabilities.

“The IRS is in dire need of reform,” Bishop said. “I think this is a real opportunity to improve the IRS for American taxpayers and to start bridging the trust gap.”

Among the witnesses testifying before the subcommittee were U.S. Reps. Peter Roskam (R-IL) and Jim Renacci (R-OH), who each outlined two bills they separately introduced and would like to have members consider.

Rep. Roskam, for instance, last August introduced the Free File Permanence Act of 2017, H.R. 3641, which has been referred to the House Ways and Means Committee. The bill would require the U.S. Treasury Department to continue operating the IRS Free File Program and to work with state government agencies and the private sector to expand and enhance the program, which offers free commercial-type online individual income tax preparation and electronic filing services to the lowest 70 percent of taxpayers by income, according to the bill’s summary.

“As an added bonus, the program actually saves the federal government an estimated $13 million a year because electronic filings are less expensive for the IRS to process than paper versions,” said Roskam.
The bipartisan bill has 123 cosponsors, including subcommittee chairman Jenkins and subcommittee members Bishop, Walorski, LaHood, and Curbelo.

Rep. Roskam also introduced the bipartisan Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act, H.R. 1843, on March 30, 2017, which would limit IRS authority to seize the funds of law-abiding citizens under false pretenses, said Roskam. Multiple incidences uncovered by House Oversight Subcommittee members showed that the IRS has abused its authority “and was stealing legally earned funds solely because the owners ran afoul of structuring laws,” he said. An identical bill, S. 824, was introduced in the Senate by U.S. Sen. Tim Scott (R-SC) on April 4, 2017. Roskam’s bill passed the House on a voice vote in September and now awaits consideration by the Senate Finance Committee.

Meanwhile, Rep. Renacci has introduced the Improper Tax Payments Reduction Act of 2017, H.R. 4233, and the Stolen Identity Refund Fraud Prevention Act of 2017, H.R. 439. Both bills, he said, would help reform the IRS’s ability to administer the tax code, which “is the critical next step to follow passage of the Tax Cuts and Jobs Act.”

H.R. 4233 addresses improper payments under the earned income tax credit, or EITC, “which is currently riddled with fraud and error,” Renacci said, adding that a 2016 TIGTA report found that nearly one in four payments made were improper, totaling $16 billion annually in improper payments. “This is unacceptable,” he said. “It’s our responsibility to ensure that taxpayers’ hard-earned dollars are being properly spent.”

Toward providing solutions, Renacci said H.R. 4233 would include procedures for reducing improper claims of earned income credit by clarifying the reporting of self-employment income, among other provisions. The congressman said the House passed the bill in November 2017 as part of the tax reform bill, but it wasn’t included in the final bill because it didn’t meet reconciliation rules during conference.

H.R. 439 is more of a personal endeavor for Renacci, who said, “Not too long ago, I was a victim of identity theft.” In leveraging what he’s learned from the experience, the lawmaker said he hopes “to keep others from going through what I went through.”

H.R. 439 proposes that both the IRS and Treasury take several steps to prevent and respond to tax-related identity theft and tax fraud via, among a variety of provisions, setting up a centralized point of contact for victims and making the overall process simpler for them to resolve cases; requiring the IRS to notify taxpayers of any unauthorized use of their identity information; and conducting a study on the feasibility for taxpayers to opt out of electronic filing, Renacci said. The bill, which has 18 cosponsors, has seen some movement in the House, he added, but not in the Senate thus far.

“In conclusion, the IRS needs our help in more efficiently administering the tax code and better serving our constituents,” said Renacci, adding that he’s working on additional reforms in collaboration with the agency.