Internal Revenue Service Acting Commissioner David Kautter testifies on Capitol Hill last winter.

Internal Revenue Service Acting Commissioner David Kautter testifies on Capitol Hill last winter. Susan Walsh/AP

IRS Defends Budget That Would Cut More Than 2,200 Full-Time Jobs

Plan favors IT over boosting enforcement and customer service.

Acting Internal Revenue Service chief David Kautter on Tuesday touted the Trump administration’s $11.1 billion fiscal 2019 budget request for its projected savings of $24.5 million and cuts of more than 2,200 full-time equivalent jobs.

Appearing with Treasury Secretary Steven Mnuchin before a Senate Appropriations Subcommittee, Kautter—who doubles as assistant Treasury secretary for tax policy—joined his boss in defending the budget’s assigning of higher priority to modernizing the tax agency’s information technology than to improving enforcement and customer service.

 “We have spent a lot of money on technology at IRS, but have not spent enough,” Mnuchin said, promising a five-year plan “to bring IRS into the modern age of technology” later this summer.

The breakdown of parts of the IRS website on Tax Day this April “was completely unacceptable,” Mnuchin added, describing plans to reprogram funds to boost what’s available for IT but agreeing on the need for a “culture change” to do more than simply “throwing money at enforcement.”

Kautter confirmed that the “firmware” that failed and prevented taxpayer payments for 11 hours last month was not part of the agency’s infamous 1960s-vintage legacy software, but only a year-and-a-half old. Such a failure in the software running the global mainframe “had only occurred once before,” he said, crediting the staff with processing 14 million payments within 24 hours of the crash. “The lesson is that during filing season, we need to keep the back-up system up and running,” he said.

The 1960s mainframe is “solid,” Kautter added, “but having a system that’s better integrated would be beneficial to the IRS. Software is our Achilles Heel.” In the past, the IRS has had a mixed performance on investing in IT, he added, but over the last two years, the agency has installed “a new team that is energetic and knowledgeable. I hope and believe [we] will see a different result.”

Subcommittee ranking member Sen. Chris Coons, D-Del., challenged Kautter’s priority of IT over conducting more audits and easing the frustrations of taxpayers experiencing poor customer service. “So on the biggest day, Tax Day, your goal is for only 40 percent” of callers getting a timely answer, he asked. Kautter had said that this year’s efforts to reduce wait times for callers had resulted in an improvement and that his team was aiming for a 60-65 percent response rate.

“We had to make some choices in funding” given the increase in cyber threats to IRS data and the aging of software and hardware, Kautter said. He acknowledged that enforcement, as measured in the number of taxpayers audited, had gone down 37 percent over the past decade, but said, “We have much more sophisticated technology and data analystics” that result in more wealthy taxpayers being audited. “In a finite world, we have to make choices.”

Kautter also tangled with Sen. Chris Van Hollen, D-Md., who quizzed him on why the Treasury Department has only released a one-page document after Mnuchin’s frequent talk of 100 career professionals analyzing last year’s major tax legislation. “The Joint Tax Committee produces a long analysis on how they got to” their projections on the bill’s impact, and the Congressional Budget Office has forecast that the law will add $2 trillion to the debt over 10 years, the Democrat said. He demanded to know on what basis the secretary is making his claims that the law’s tax cuts will pay for themselves.

“We did extensive analysis as the bill was being considered, which culminated in one page with a lot behind it,” Kautter said. The Joint Tax Committee delivered “a reasonable analysis, but when you’re predicting the future, there is a wide range of reasonable estimates.”

Kautter said he wasn’t aware of any longer Treasury analysis that hadn’t been released, but promised to heed Van Hollen’s request—supported by Chairman James Lankford, R-Okla., that Treasury search for such a document, along with any related income distributional tables prepared to gauge the tax cuts’ impact.

Kautter reported progress on implementing the new law, saying IRS had prepared 70 new guidance publications and most of the new forms, to be revealed this summer. He called for investment in program integrity controls to reduce fraud and improper payments, and he asked for more hiring authority for special employees who command higher salaries.

Asked about the state of the IRS’ Exempt Organizations division—the subject of much congressional scrutiny for the past five years because of alleged political targeting of conservative nonprofits—Kautter said, “its leadership has changed, and there’s a completely different tone than existed in the past. They’re interested in fair and equitable execution of the law.”

Despite a $320 million cash infusion provided for fiscal 2018 for implementation of the new tax law, the new Trump request would represent the eighth year in a row of cuts to the IRS. It would fund the agency at $295 million below current levels and “force the agency to shed another 5,800 frontline employees, including those who provide taxpayer service and enforcement,” according to testimony submitted by the National Treasury Employees Union.