Mnuchin, Kautter Testify Before Senate Committee on Outdated IRS Technology

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IRS Budget Hearing Testimony

The IRS’s “Achilles’ heel” is using outdated software originating from the 1960s, Acting IRS Commissioner David Kautter told Senate lawmakers. Kautter and Treasury Secretary Steven Mnuchin testified in a May 22 Senate Appropriations Financial Services and General Government Subcommittee hearing.

System Shut Down

2.3 million cyber attacks are launched against the IRS each day, one million of which are sophisticated, Kautter told Senate appropriators. Kautter and Mnuchin testified before the Subcommittee on the Trump Administration’s fiscal year (FY) 2019 Treasury and IRS budget request.

Underscoring the numerous cyber threats against the IRS is its antiquated technology systems currently in use, Kautter said. “59 percent of IRS hardware and 32 percent of IRS software is obsolete,” Kautter told Senate appropriators.

Tax Day Glitch. However, the outdated technology at the IRS was not the cause of the partial system shut down that occurred this year on Tax Day, April 17. For eleven hours, certain taxpayers were unable to electronically submit payments through the IRS’s Direct Pay feature. The particular hardware that failed on Tax Day, however, is only a year-and-a-half old, Kautter said.

Five-Year Plan

The IRS and Treasury are currently crafting a new five-year plan to update the IRS’s information technology (IT) systems, both Kautter and Mnuchin testified. A preliminary draft of the plan is expected within 90 days, Mnuchin said.

“The IRS has not done a good job in the past with regard to its technology dollars,” Kautter said. However, the leadership team at the IRS is new, energetic, and knowledgeable, and will thus render a different result, he added.

Tax Reform

Technology is the most time consuming and expensive aspect of tax reform implementation, according to Kautter. Additionally, Kautter expects that guidance on all major aspects of tax reform under the Tax Cuts and Jobs Act (TCJA) will be out by fall. Recently, Kautter said that proposed guidance on the Code Sec. 199A pass-through deduction will be released in July.

Tax Gap

“In 2016, IRS estimated that the average annual gross tax gap—the difference between taxes owed and taxes paid on time—was $458 billion for tax years 2008-2010,” Subcommittee Chairman James Lankford, R-Okla. said during his opening statement. However, the tax gap is most attributable to the “cash” economy, Kautter told lawmakers.

“An individual taxpayer making more than $1 million a year is seven times more likely to be audited than a taxpayer making under $200,000 a year,” Kautter said. “The problems with the tax gap tend to be in the cash economy.”

Budget

The Trump Administration’s FY 2019 budget request proposes a total of $12.3 billion for Treasury’s operations and bureaus. The budget request proposes $11.135 billion in IRS funding. This figure for the IRS includes “savings and reductions” of $24.5 million compared to the FY 2018 enacted levels, according to Kautter.

The FY 2019 budget request allocates IRS funding for the following:

  • taxpayer services: $2.24 billion;
  • operations support: $4.16 billion;
  • enforcement: $4.63 billion; and
  • business systems modernization: $110 million.