House Votes to Reorganize IRS as Agency Computers Fry on Tax Day

Lawmakers are working through a set of bills to restructure the Internal Revenue Service, but funding remains an afterthought in the effort to retool the agency.

April 17, 2018, 8 p.m.

The House celebrated Tuesday, Tax Day, by passing a bipartisan package of bills meant to restructure the Internal Revenue Service into what lawmakers hope will be a more taxpayer-focused agency. On the same day, the IRS computer system for collecting some taxpayer payments kicked the bucket.

The IRS hasn’t yet announced a cause, but the early-morning failure of the agency’s direct-payment system, in which taxpayers can initiate bank transfers to pay their taxes, comes after years of IRS budget cutbacks and warnings about aging digital infrastructure. Taxpayers were left unable to complete their returns, though the agency said affected people won’t be penalized.

That’s all while Congress seeks to remake the IRS in the wake of last year’s massive tax-code overhaul without an influx of additional funding to back up its effort.

“Tax Day is always a frustrating day for hard-working Americans, and the IRS’s IT issue today certainly heightens that frustration for taxpayers,” House Ways and Means Chairman Kevin Brady said in a Tuesday statement. “It’s another reminder of the need to refocus the IRS’s mission to put taxpayers first—and the House is voting this week to pass major bipartisan reforms to do just that.”

Congress Tuesday passed by a voice vote the first set of bills to reorganize the IRS, with several more bills set for a vote on Wednesday. The package would create a taxpayer-focused appeals office inside the agency and make changes to the asset-forfeiture process and the private debt-collection system. The slew of bills also has provisions that would revamp online tax filing, including requiring tax-exempt entities like 501(c)(3) organizations to file electronically.

To help usher in these electronic-filing overhauls, the package would also codify the position of IRS chief information officer, who will be tasked with setting up a long-delayed program to create a secure account system for taxpayers.

Senate Finance Committee Chairman Orrin Hatch and ranking member Ron Wyden have yet to weigh in on the House IRS bills. Wyden said he may speak with Hatch about the measures at their weekly Wednesday meeting. The last time Congress restructured the IRS was in 1998.

But what the new House effort doesn’t have is additional funding to implement the new mandates. Brady said the agency doesn’t necessarily need the money and that the bills are about redesigning and refocusing where the agency “should have been all along.”

“Here we’re really talking about refocusing on taxpayer service; that should have been the No. 1 priority,” Brady told reporters Monday, before the IT crash. “And we also think they can make far better use of the millions of dollars for IT that’s crucial to protecting taxpayers’ private information as well.”

Indeed, lawmakers have pushed to require the IRS to deliver periodic progress reports on its embattled information-technology system.

Last month’s omnibus spending bill did see a slight boost in IRS funding, allocating a one-time, $320 million increase to help the agency implement last year’s tax overhaul. But funding for the agency has declined by $900 million annually since 2010, and service levels have dropped correspondingly. Critics of the decline in funding have linked the crash with the drop in appropriations spending for the agency.

“As of right now we don’t know what has caused the system failure,” Wyden said Tuesday. “But I will tell you the lack of Republican funding for the IRS to serve taxpayers is only going to compound the issue.”

Problems with IT systems have been a perennial challenge for the IRS. Congressional testimony by a member of the Treasury inspector general’s office last year noted that the agency was in dire need of replacing its aging computer infrastructure and in some cases relied on software that was decades old.

“In its FY 2016 President’s Budget Request, the IRS noted that its information-technology infrastructure poses significant risk of failures, although it is unknown when these failures will occur, how severe they will be, or whether they will have material impacts on tax administration during the filing season,” Danny Verneuille, assistant inspector general for audit security and information-technology services, wrote last October as part of his testimony.

Verneuille also noted that development of the secure-account-system project—which would be mandated by the recent bills—was “significantly delayed” because of funding and staffing concerns.

“IT is a continuing concern,” said Mark Everson, a former IRS commissioner and current vice chairman of Alliantgroup. “It is for all financial and government entities, and you need to be worrying both on the security side and also on the automation side. That runs as much as to the other imperative, that Congress provide adequate funding to the service.”

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