New IRS rules, no increased funding in appropriations bill

Congress passed the Consolidated Appropriations Act, 2017, H.R. 244, on Thursday, and it will go to President Donald Trump for his signature. The bill funds the federal government through the rest of its fiscal year, which ends Sept. 30. It passed the House of Representatives on Wednesday on a 309–118 vote and passed the Senate on Thursday on a 79–18 vote.

Included in the bill is $11.2 billion in funding for the IRS.

The bill appropriates $2.2 billion for IRS taxpayer services, of which $8.9 million is to be spent on the Tax Counseling for the Elderly Program, $12 million is earmarked for low-income taxpayer clinic grants, and $15 million for Volunteer Income Tax Assistance grants. The Taxpayer Advocate Program receives $206 million, with $5 million of that earmarked for identity theft case work. Another $290 million is earmarked to improve customer service, identification and prevention of refund fraud and identity theft, and cybersecurity. To receive the additional money, the IRS commissioner must submit to the House and Senate appropriations committees spending plans for the use of those funds.

The bill appropriates $4.9 billion for IRS tax enforcement activities, $3.6 billion for operations support, and $290 million for business systems modernization. The bill also forbids the Treasury Department from using any of the $3 million appropriated for development and acquisition of “automatic data processing equipment, software, and services and for repairs and renovations to buildings” to pay for IRS operations support or IRS business systems modernization.

The bill also imposes rules on IRS conduct. It forbids the IRS from paying bonuses or from rehiring former employees without considering their conduct and tax compliance status.

The IRS is also forbidden from using moneys to pay for any videos, unless the Service-Wide Video Editorial Board determines ahead of time that the video is “appropriate.” Moneys cannot be spent on conferences unless the conference adheres to the “procedures, verification processes, documentation requirements, and policies issued by the Chief Financial Officer, Human Capital Office, and Agency-Wide Shared Services.” These rules are a response to reports from 2013 by the Treasury Inspector General for Tax Administration (TIGTA) that the agency had been wastefully spending money on conferences and on Star Trek-themed and dance videos (TIGTA, Review of the August 2010 Small Business/Self-Employed Division’s Conference in Anaheim, California, Rep’t No. 2013-10-037 (May 31, 2013)).

The bill also forbids the IRS from targeting an organization based on its “ideological beliefs”—perhaps in response to another 2013 scandal, in which the IRS used inappropriate criteria that identified for review applications for tax-exempt status from organizations based upon their names or policy positions instead of focusing on the activities of the organizations and whether they met the requirements under the law for tax-exempt status (TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review, Rep’t No. 2013-10-053 (May 14, 2013)). The bill also prohibits the White House from ordering the IRS to determine an organization’s tax-exempt status.

—Alistair Nevius (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor-in-chief, tax.