Administration May Get Even More Difficult for the IRS

It's no secret that Congress hasn't been making the IRS's life very easy. In a time of discretionary spending caps, they are looking to reduce the agency's budget all while they add further to the complexity of the tax code. National Taxpayer Advocate Nina Olson has frequently said that the IRS is underfunded to do the enormous task lawmakers are asking of it, contributing to the large gap ($385 billion in 2006) between total tax liability and actual revenue collected.

A blog post in The Hill highlights the further difficulty that irresolution of the fiscal cliff will cause for tax administration. Both Olson and IRS Commissioner Doug Shulman have expressed concerns that the 2013 filing season could be very messy. While the fiscal cliff involves a lot of provisions that will expire at the end of the year, it includes a number of tax breaks that have already expired and could be enacted retroactively. The Alternative Minimum Tax patch and a whole host of temporary tax extenders expired at the end of 2011, and a late resolution to the fiscal cliff could create an administrative nightmare for tax filing. The tax law that had prevailed for most of 2012 would suddenly be changed, causing tax burdens to suddenly change and causing the IRS to have to change its forms for calculating liability. In short, the administrative burden would grow significantly for the IRS.

Problems of administration would extend to 2013 if lawmakers kicked the can a few months at a time. Issuing withholding tables, for example, would become difficult since the IRS would constantly need to be ready to change them as tax law changed. The complexity of the tax code that prevails year after year would suddenly become magnified within a single year.

Certainly, the IRS isn't an agency likely to elicit sympathy from taxpayers, but Congress could do better by them. The agency had difficulty enough dealing with the late resolution to the 2010 tax cut, but they could make things much worse this year if they don't enact a long-lasting solution to the cliff.