After years of upbraiding and even threatening to abolish the Internal Revenue Service, Republicans must now depend on the agency to carry out their signature legislative accomplishment: a comprehensive revision of the tax code.
The task is monumental. While processing tens of millions of tax returns for 2017 under the current rules, the I.R.S. would also have to figure out how to interpret and explain a new system and put it into practice.
“Beware,” said John A. Koskinen, who retired last month as I.R.S. commissioner. “If the budget keeps being cut and the agency keeps being given more things to do, the I.R.S. is simply not going to work.” Either the information technology will fail, forcing the filing and refund systems to collapse, he warned, or enforcement and audits will become so scarce that fewer people will be inclined to pay the taxes they owe.
Even before Congress began revising the tax code, the I.R.S. was struggling to keep up with an expanding workload. Since 2010, its budget has been cut by $900 million — or 17 percent, after adjusting for inflation — and its staff reduced by 21,000, or 23 percent. In the meantime, it has had to process roughly 10 million more individual returns.
The agency has been a favorite target of Republicans, who have complained that it unfairly investigated conservative organizations and reveled in irritating taxpayers. (A recent inspector general report showed that the I.R.S. had scrutinized both liberal and conservative groups.) During the campaign, President Trump accused the agency of unjustly hounding him with audits year after year. Paying as little as possible was “the American way,” he declared.
Although Treasury Secretary Steven Mnuchin has acknowledged the importance of sufficiently funding the nation’s revenue collector, Mr. Trump’s budget proposed deep cuts.
Referring to enforcement, taxpayer services, and cybersecurity, Mr. Koskinen said, “We don’t have enough people to do all the work that needs to be done as a general matter,” let alone grapple with an overhaul of the tax code.
Getting out new withholding tables, so that payroll managers know how much to deduct from paychecks and can update their systems, would be a priority on the agency’s expanded to-do list.
The American Payroll Association, with 21,000 members, sounded an alarm in a letter to Congress: “Our members are already starting to panic, on behalf of themselves and millions of employees, about the effect on 2018 withholdings of a tax bill that will be effective a week after its enactment.”
The I.R.S., in a statement on Thursday, said that taxpayers should not expect to see any changes as a result of the legislation to be reflected in their paychecks until February, and that the agency would work closely with payroll and tax professionals.
That delay puts the onus on workers to make adjustments later in the year if too much or too little money is being withheld because their January paychecks reflect the outdated 2017 law.
Pete Isberg, vice president for government relations for ADP, one of the largest payroll providers, said taking account of the changes would be easier for the larger automated companies, but acknowledged that the short lead time between the law’s anticipated passage and the effective date would be a problem for some.
The prospective elimination of personal exemptions adds another twist. That may invalidate all the automatic withholding forms, or W-4s, that employees signed, Mr. Isberg said, “and put employers it the position of getting a new W-4 from every U.S. worker.”
The burden of carrying out a new code also falls heavily on the I.R.S. legal staff, who — along with their counterparts at the Treasury Department — are responsible for explaining to tax preparers, businesses and individuals what the statute means. They will detail, for example, under what circumstances the alternative minimum tax should be used, or whether a given expense qualifies for a particular exemption.
If the plan is passed, I.R.S. staff members will have to write countless guidelines and regulations to define and explain critical terms and concepts, as well as correct technical flaws that can arise in the best of circumstances, let alone in a bill done at breakneck speed.
Mr. Trump’s directive to federal agencies to eliminate two regulations for every one that is added could present an unexpected speed bump. Most of the regulations that the I.R.S. issues with Treasury are meant to interpret rather than set policy.
“The I.R.S. needs to be exempt from those regulations, or they just won’t be able to implement the law,” said Fred T. Goldberg Jr., I.R.S. commissioner under President George Bush.
The agency can also expect it would be deluged with questions from taxpayers and practitioners about the changes. Responding would require retraining employees and making new hires to handle the expected onslaught of requests.
“The I.R.S. is one of the few agencies that touches just about every household,” said Mark J. Mazur, director of the nonpartisan Tax Policy Center in Washington. “If you go to an I.R.S. walk-in site, you have some expectation of getting the right answer.”
Updating the agency’s vast computer system is also a gargantuan undertaking. The I.R.S. (along with much of the federal government and major financial institutions) uses a computer programming language called COBOL, developed almost 60 years ago. Almost every coding change will, in effect, have to be entered by hand.
Congress significantly increased the agency’s funding after the 1986 tax overhaul passed. As a result, the I.R.S. hired an additional 2,100 employees to help implement the new law.
This time, Congress has not made any specific appropriation requests. During hearings last week before a House oversight committee, witnesses testified about how difficult it would be for the I.R.S. to handle the largest overhaul of the tax code in more than 30 years. Little consideration has “been given to ensuring I.R.S. has the resources necessary to carry out this monumental task,” Tony Reardon, president of the National Treasury Employees Union, testified.
Given how much the bill is expected to cost, even under the Republicans’ optimistic projections, meeting its budget targets will depend on collecting the taxes owed under the new system.
Challenging the I.R.S. at every turn, however, will be a growing phalanx of highly paid tax lawyers and accountants intent on finding ways to outmaneuver the I.R.S. and avoid taxes. Every 1 percent drop in compliance costs the government $33 billion a year. Yet enforcement and auditing capabilities have perhaps suffered the most as the agency’s budget has shrunk.
“It won’t surprise me if the combination of the filing season and implementation of the legislation create significant problems,” said Marcus S. Owens, a Washington lawyer and former director of the I.R.S. division for tax-exempt organizations.