While the Internal Revenue Services has made “considerable progress” implementing the tax overhaul of 2017, “much work remains” as the IRS and Treasury issued approximately half of planned official guidance, according to a just-released Government Accountability Office study.
Treasury failed to issue “all planned final regulations within the 18 months the agency generally has to issue regulations retroactive to the date of a law’s enactment or before taxpayers were required to file tax returns, which has the potential to be significant for both taxpayers and IRS,” GAO states in its 77-page report.
Of the 51 planned final regs to implement the law’s business and international provisions, “Treasury issued five within the 18-month time frame,” the report states.
Treasury also issued one temporary regulation within this time frame. Treasury did not release any final regulations for eight of its 12 priority provisions.
While taxpayers and other stakeholders “appreciated the supplemental information Treasury provided in the absence of final regulations,” IRS Chief Counsel officials say “a significant effect of relying on proposed regulations rather than final regulations is uncertainty.”
According to IRS, the 2017 overhaul was the most sweeping tax law change in more than three decades, with 86 provisions that modified, added to or repealed business and international taxes, such as the qualified business income deduction.
IRS determined it would take significant effort to implement the law given the limited time frame and magnitude of the provisions, GAO states.
Senate Finance Committee Ranking Member Ron Wyden, D-Ore., said in a Wednesday statement that “GAO confirms my warnings came true. In jamming through their tax bill, Republicans failed to include crucial details and drafted a sloppy law. IRS was left to pick up the pieces and deal with millions of outraged taxpayers.”
Importantly, Wyden added, “GAO also notes that the Treasury Department excluded important analyses of how much money was lost from lax regulations and who reaped the benefits. The result is billions in additional handouts to the wealthy and corporations and an even greater revenue loss than the original $1.5 trillion price tag.”
GAO made five recommendations, including that IRS develop and document procedures for continued enhanced collaboration and convert tax return data to a more usable format for compliance purposes. IRS disagreed; however, “GAO believes that these recommendations will benefit guidance development and tax administration.”
In prior work, GAO recommended that IRS measure which activities were producing desired hiring outcomes and take steps to reduce skill gaps among revenue agents. IRS agreed with these recommendations and, as of December 2019, planned to report on efforts to close skill gaps by December 2021.
IRS has begun training staff on several new tax provisions, including high-priority provisions, and plans to deliver additional training in 2020, GAO reported.