After years of budget cuts, the agency must quickly calculate new pay tables, issue guidance for taxpayers, train staff and update its computers.
The Internal Revenue Service is putting a brave public face on the massive tax cut President Trump signed into law Friday, though stakeholders familiar with past such implementations see a calm before the storm.
Reached on Thursday, the IRS in a statement said the agency had “started initial work on implementing this major tax legislation. We are working to provide more specific information and guidance to taxpayers, businesses and the tax community as quickly as possible in the weeks and months ahead.”
In a Dec. 7 call for payroll industry professionals, IRS officials said it would be issuing several of its publications, including the 2018 federal withholding tables and related guidance and forms, later than usual due to the potential enactment of the Tax Cuts and Jobs Act.
Still-in-the-works guidance for the nation’s payroll and tax professional community on anticipated changes in tax withholdings from employees’ paychecks is expected in January, the agency said, “which would allow taxpayers to begin seeing the benefits of the change as early as February.”
On Dec. 19, the IRS put out its normal reminder for the coming 2017 filing season (for which current tax law still applies), offering security tips for the 90 percent of filers who submit tax returns electronically, and advising taxpayers to wait until the end of January to file, to ensure they have received all relevant documents.
The text of the bill that has cleared both houses of Congress provides some latitude on such issues as the withholding amounts and the loss of personnel exemptions, Mike O’Toole, government relations chief for the American Payroll Association, told Government Executive.
The payroll group had sent a letter to lawmakers dated Dec. 11 asking for clarity on some of the bill’s provisions such as those on withholding requirements for lump-sum employee bonuses and supplemental wage payments, ambiguities that remain, O’Toole said.
But the payroll association is pleased that lawmakers at the last minute dropped some provisions that would have cancelled tax-free status for employee benefits as educational assistance programs, dependent care assistance, adoption assistance and employee achievement awards for longevity and safety, he added.
“America’s employers deserve transition relief—applicable throughout 2018—from any penalties for failing to properly withhold or deposit federal income tax,” the letter recommended. “Employers and payroll professionals are the main reason that the tax withholding system works in the first place, and making massive changes to the system with an unconscionably short lead time is a recipe for disaster.”
Some of that fear of “disaster” at an agency whose budget has been slashed by 10 percent since 2010 (costing it 21,000 employees) stems from memories of the 1986 tax reform.
Like the current legislation, that major bill during the Reagan administration “required IRS to produce tax withholding tables that were as accurate as possible,” recalled then-Internal Revenue Commissioner Lawrence Gibbs, now a senior counsel with Miller Chevalier. So staff “created a triangular table that was very difficult—taxpayers had to look at three different places” to project the amounts.
After news reporters asked about long-promised simplification, the agency created a simpler table as an alternative way for taxpayers to set the withholding amounts. “Yet almost all Americans used the triangular table and were willing to put up with the complexity to get to right amount,” Gibbs said. “That gives you some idea of the magnitude of importance of just one form after tax reform was enacted.”
Jennifer MacMillan, government relations chair for the National Association of Enrolled Agents, which represents certified tax preparers, told Government Executive “the IRS budget has been devastated lately, and it’s not looking very good for getting any better.” The new tax law will require “a massive amount of work—the chief counsel has to interpret it and write guidance for all of us. They don’t have a lot of time,” she added.
MacMillan considers it fortunate that the filing season about to begin in January will still be based on existing law. But “taxpayers and practitioners need to get ready for 2019 and the 2018 filing season. The agency will need a lot of additional resources,” she said, and “given the minimal level of service is has been able to provide, it has been a disaster.”
The staff time IRS will need to divert to new forms, guidance and training for the new law’s provisions can only come from other divisions, she said, which will further impact taxpayer service. A taxpayer who rents out a room, for example, may have a question on whether proceeds and expenses are deductible, she noted. “But if they can’t get an answer, they will simply leave if off their tax return.”
The amount of reprogramming of IRS computers for the new tables “is probably monumental,” said Tony Reardon, national president of the National Treasury Employees Union. While new policies, forms and regulations have to be created, “another important piece is that employees have to be trained on the changes” as well as tax practitioners.
His union, which has long protested IRS budget cuts and heightened workload, sees the situation as “crushing” for the agency.
“I don’t have a sense the agency has quite figured out what it’s doing, how it’s doing it, and its timetable for doing it,” he said. “I think they’re scrambling to figure out what it all means at this juncture.”
Republicans in charge of Congress have said they plan reforms—if not new funding—to the IRS in 2018 as the agency implements the highest-impact tax legislation in three decades.