Tax Cuts and Jobs Act: Considerable Progress Made Implementing Business Provisions, but IRS Faces Administrative and Compliance Challenges

According to IRS, TCJA was the most sweeping tax law change in more than three decades, with 86 provisions that modified, added to, or repealed business and international taxes, such as the qualified business income deduction.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 was asked to review IRS's implementation of TCJA business and international provisions. Among other reporting objectives, this report examines IRS's (1) progress implementing the provisions, (2) processes to provide guidance, and (3) challenges for effectively administering these provisions.

To address these objectives, GAO analyzed IRS documentation on project management, compliance planning, and regulation development. Additionally, GAO interviewed IRS officials and tax practitioners.

The Internal Revenue Service (IRS) has made considerable progress issuing guidance to taxpayers for Public Law 115-97—commonly known as the Tax Cuts and Jobs Act of 2017 (TCJA)—but has additional work remaining to issue all planned guidance, as shown in the figure.

To improve efficiency of TCJA guidance development, IRS internally collaborated earlier and more frequently than during more routine tax law changes. IRS officials said the benefits of this enhanced collaboration included faster decision-making on time-sensitive guidance, including regulations. IRS officials agreed enhanced collaboration had value but as of December 2019 had not identified the parameters for when this collaborative approach would be warranted.

IRS may face challenges ensuring compliance with certain TCJA provisions because third-party information reporting is not always available. GAO's past work has found that one of the important factors contributing to the tax gap is the extent to which information is reported to IRS by third parties. Without third-party reporting, IRS will have to rely on resource-intensive audits to enforce certain TCJA provisions, which could be challenging given recent trends of declining audit rates and enforcement staff. GAO has recommendations from March 2019 for IRS to take actions to mitigate hiring risks and reduce skill gaps.

IRS was also unable to update all information technology systems prior to the start of the 2019 tax season due to the magnitude of TCJA changes. As a result, IRS was not able to capture certain tax return information in a format that can be easily analyzed to help with compliance planning activities. One IRS division took steps to convert certain tax return data to a more useable format, but efforts to identify other viable opportunities have not been taken. Without appropriate data for analyses, IRS could face challenges enforcing certain TCJA provisions.

GAO is making five recommendations, including that IRS develop and document procedures for continued enhanced collaboration and convert tax return data to a more useable 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 are producing desired hiring outcomes and take steps to reduce skill gaps among revenue agents. IRS agreed with these recommendations and, as of December 2019, plans to report on efforts to close skill gaps by December 2021.

According to the Internal Revenue Service (IRS), Public Law 115-97— commonly known as the Tax Cuts and Jobs Act of 2017 (TCJA)—was the  most sweeping tax law change in more than 3 decades. The law created  119 provisions that modified, added, or repealed sections of the U. S. tax  code, 86 of which relate to business and international taxes. Among its  many provisions, the law reduced the top corporate tax rate from 35  percent to 21 percent, created potential tax benefits for taxpayers  invested in designated qualified opportunity funds, and significantly  changed the international tax regime.

Given the magnitude of the changes in TCJA, IRS determined that it  would take significant effort to implement the law and ensure that  taxpayers have the necessary guidance to fulfill their obligations. While  IRS has to make changes to its products every year, many of the  changes needed to implement TCJA were time sensitive and extensive.  IRS determined it would need to revise or create nearly 500 tax forms,  instructions, and publications to help taxpayers meet their new tax filing  obligations. Also related to TCJA implementation, IRS officials said they  would need to reprogram information technology (IT) software systems,  hire more than 1,000 new employees, and train the IRS workforce.

You asked us to review IRS’s implementation of the business and  international provisions of TCJA. The objectives of this report are to (1)  examine IRS’s processes to provide guidance to taxpayers on these  provisions, (2) assess the economic analyses the Department of the  Treasury (Treasury) conducted as part of the regulatory development  process, (3) evaluate IRS monitoring of implementation of these  provisions and describe implementation status, and (4) examine  challenges that could affect IRS’s ability to effectively administer these  provisions.

To address our first objective, we analyzed IRS documentation, such as  prioritization records, guidance development records, and actual  regulations and other guidance documents (e.g., notices and news  releases). We also interviewed IRS officials involved in the guidance  development efforts. We used criteria from our key practices for federal  agencies to enhance and sustain collaboration efforts and the Standards  for Internal Control in the Federal Government to examine IRS’s strategy  for developing guidance and providing information to taxpayers.

To address our second objective, we analyzed IRS, Treasury, and Office  of Management and Budget (OMB) documentation detailing the  regulatory development and decision-making processes. We also  interviewed officials from the IRS’s Tax Reform Implementation Office  (TRIO), IRS’s Office of Chief Counsel (Chief Counsel), Treasury’s Office  of Tax Policy, and OMB’s Office of Information and Regulatory Affairs  (OIRA). Specifically, to identify the factors Treasury and IRS considered  when analyzing different regulatory options and deciding which regulatory  options to select, we analyzed TCJA draft and published regulations and  underlying documentation to identify the factors Treasury and IRS  considered when analyzing trade-offs presented by different regulatory  options. We used criteria from OMB regulatory guidance for executive  branch agencies to examine Treasury’s development and analyses of  regulatory alternatives. This includes an April 2018 Memorandum of  Agreement between Treasury and OMB, Executive Order 12866, and  OMB Circular A-4.

To address our third objective, we analyzed IRS project management  documentation, such as IRS’s Enterprise Integrated Project Plan (EIPP)  for TCJA implementation and publicly issued guidance. We also  interviewed IRS officials responsible for implementing business and  international TCJA provisions, including IRS’s TRIO, Large Business &  International (LB&I) Division, Small-Business/Self-Employed (SB/SE)  Division, and Information Technology organization. We used criteria from  Standards for Internal Control in the Federal Government to evaluate  IRS’s project management activities.

To address our fourth objective, we analyzed TCJA and IRS  documentation, including SB/SE compliance plans. Further, we  interviewed officials from TRIO, LB&I, SB/SE, Information Technology  organization, and Chief Counsel. We also interviewed and subsequently  analyzed statements from randomly selected tax practitioners who  submitted public comments on IRS’s proposed regulations for the  qualified business income (QBI) deduction, opportunity zones, and the  repatriation tax—provisions we analyzed in further depth (see discussion  below)—to identify outside perspectives on challenges for IRS  administration and enforcement.

We examined these challenges and risks and subsequently followed up  with IRS to understand the extent to which IRS was aware of and  planning mitigating actions to address them. We used IRS’s strategic plan  and Standards for Internal Control in the Federal Government as criteria  for identifying any gaps between mitigation efforts and overall agency- wide goals and priorities.

As part of our work, we further analyzed three provisions—the QBI  deduction, opportunity zones, and the repatriation tax—to gain specific  insights into the decision-making process for prioritizing and developing  guidance and regulations and factors that may affect IRS’ ability to  effectively administer these provisions. We selected these three  provisions based on a number of factors, including IRS designating them  as higher priority for implementation, and IRS, the National Taxpayer  Advocate, and other knowledgeable stakeholders identifying them as  especially challenging or complex to implement, administer, or enforce.  Further, these three selections ensured we were able to examine at least  one provision impacting domestic taxpayers managed by SB/SE division  and at least one provision impacting foreign or multinational taxpayers  managed by LB&I. For a more detailed description of our objectives,  scope, and methodology, see appendix I.

We conducted this performance audit from August 2018 to February 2020  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Of TCJA’s 119 provisions, 86 relate to business and international tax law,  ranging in scope from tax treatment of commuter benefits to significant  modifications to international aspects of U.S. income tax. See table 1 for  select examples of tax law changes resulting from TCJA.

While Congress amends the tax code routinely, the time constraints and  magnitude of changes within TCJA are less common. According to IRS  officials, the last time IRS implemented major tax law changes was in  1986. For TCJA, IRS had a relatively short time frame to implement  because the law included many time-sensitive provisions that were either  retroactively effective, or immediately effective upon the law’s enactment.

To implement TCJA, IRS established working groups to provide project  management oversight, coordinate the implementation of TCJA  provisions across IRS, and identify priorities, challenges, and risks of the  new tax law changes. For instance, TRIO was established in January  2018 as a short-term centralized authority to prioritize, oversee, and  coordinate implementation of TCJA, as shown in figure 1.

TRIO’s oversight model was based on the working groups convened  during IRS’s implementation of Patient Protection and Affordable Care  Act. Made up of officials with expertise across IRS, including IRS’s  business operating divisions (BOD)—the offices responsible for  implementation, oversight, and compliance of tax laws—TRIO was  established to temporarily oversee TCJA implementation through the  2019 filing season. TRIO’s objectives for the 2019 filing season included  ensuring that taxpayers understood their tax obligations and that IRS  could process tax returns, payments, and refunds. In March 2019, TRIO  dissolved and transitioned oversight and operations to the BODs.

In addition to the working groups that were established to implement  TCJA, IRS also relied on its usual practices for implementation of tax law  changes, including developing guidance, training employees, and  updating technology systems:  Determining appropriate guidance for release. IRS interprets the law  and develops guidance using a variety of documents and services to  communicate its interpretation to help taxpayers understand their tax  obligations.

IRS guidance includes Treasury Decisions (the formal name for final  or temporary tax regulations), which are considered the legally binding  interpretation of the statute and IRS’s official position on federal tax  law. Treasury generally has 18 months after tax law changes to  issue final regulations for them to be retroactively effective to the date  of enactment, though there is an exception to prevent abuse. In  some cases, Treasury will issue temporary regulations—to provide  immediate guidance—prior to issuing final tax regulations. Other  forms of guidance include proposed regulations—a step in the  regulation development process—revenue rulings, revenue  procedures, and notices, among other documents, to provide  additional official guidance to taxpayers.

IRS also provides taxpayers with a range of other information  sources, including frequently asked questions, webinars, YouTube  videos, and news releases.

Developing guidance. IRS’s Chief Counsel, in coordination with  Treasury’s Office of Tax Policy, drafts tax regulations and also works with  IRS BODs and the public. Draft tax regulations are circulated throughout  IRS and Treasury for review and approval before being published as a  proposed tax regulation in the Federal Register. The public is given the  opportunity to provide comments, which are analyzed and incorporated  as appropriate into another draft of the regulation. The draft tax regulation  is again circulated through IRS and Treasury for review and approval,  before being published as a final tax regulation in the Federal Register.

In some instances, once the draft proposed and final regulations have  gone through the IRS and Treasury approval process, regulations may be  subject to review by OIRA. OIRA reviews tax regulations that may  create serious inconsistencies or otherwise interfere with another  agency’s actions, raise novel legal or policy issues, or have an annual  non-revenue effect on the economy of $100 million or more measured  against a no-action baseline.

Conducting stakeholder outreach. In addition to the development of  regulations, IRS works with the public to gather feedback, educate  taxpayers on published guidance, and inform it of upcoming efforts to  provide additional guidance on key areas where IRS and stakeholders  require additional clarity.

Developing internal policies and procedures. IRS updates its Internal  Revenue Manual (IRM)—the official compilation of instructions to staff on  the administration and operation of the IRS—with procedures that inform  staff of the steps they should take to correctly complete work and  administer new tax law changes.

Training employees. IRS trains employees to understand revisions in  the tax code and ensure they have the tools necessary to manage key  priorities such as using data and analysis to improve customer service  and enforcement efforts.

Modifying Information Technology (IT) Systems. IRS’s Information  Technology organization updates the application programs of the tax  return intake systems to allow IRS to accept and process tax returns.  Generally, IRS captures data from electronically filed (e-filed) tax returns  through its Modernized e-File application in a format that can be used for  compliance and enforcement purposes.

IRS Prioritized TCJA Implementation Activities and Used Collaborative Practices to Develop Guidance, but Has Not Decided Whether to Continue Enhanced Collaboration

Given the magnitude and short timeline for TCJA implementation, IRS  reassessed priorities to implement the law. While some IRS officials said  they were largely able to balance TCJA implementation with their other  work, other officials from Chief Counsel told us they decreased some field  services to taxpayers, and scaled back non-TCJA guidance development.  Additionally as a result of TCJA, IRS temporarily postponed some  planned work, including some IT work and publication of previously  planned taxpayer guidance on health savings accounts, the work  opportunity tax credit, and other areas.

To meet statutory requirements and best meet taxpayer needs, IRS  prioritized 33 TCJA provisions for initial implementation, including 12  business and international provisions as the highest priorities, as shown  in table 2. IRS officials said their highest priorities were to implement  retroactive provisions because they affected the tax year beginning prior  to January 1, 2018—and entirely new provisions. According to IRS  planning documentation, in making these decisions, the agency  considered the anticipated amount of public scrutiny, as well as the  necessary amount of internal collaboration, external stakeholder  coordination, and the extent of IT system modifications required to  implement.

IRS Attempted to Address Significant Questions in Early Guidance, but Unresolved Questions Created Challenges for Taxpayers

To help taxpayers understand the new tax law and meet their tax  obligations, IRS released various types of guidance. Officials told us they  aimed to address the most significant questions through early guidance,  before answering secondary questions in subsequent guidance. IRS  developed comparisons of TCJA with the previous law to help taxpayers  understand changes by topic and conducted public information  campaigns targeting specific audiences, such as small businesses, to  help taxpayers identify the right information and resources to meet their  tax obligations.

According to IRS officials, one challenge with taxpayers needing to rely  on guidance when guidance has not been finalized is that unresolved  questions can create uncertainty and guesswork for some taxpayers.  While some tax practitioners we spoke with said the release of shorter  and earlier information was helpful to provide insight into initial IRS  positions on provisions that required immediate instruction, other tax  practitioners said that the absence of complete information meant that  taxpayers had to file their taxes without certainty.

For instance, IRS worked to provide early information to taxpayers on the  immediately effective repatriation tax. Repatriation tax payments were  due in 2018; however, under the law, taxpayers had the option to pay in  installments over 8 years. IRS did not have time to release  comprehensive guidance in advance. To provide some early information  to taxpayers, IRS instead released three notices (in January, February,  and April 2018) and a revenue procedure (February 2018) to help  taxpayers understand topics such as whether they were subject to the tax  and their tax liability.

In May 2019, the Treasury Inspector General for Tax Administration  (TIGTA) reported that the short implementation time frame did not leave  taxpayers sufficient time to understand the guidance and comply with  their resulting tax liability. TIGTA reported that while IRS made a  reasonable effort to inform taxpayers of the requirements under the  repatriation tax, some taxpayers overpaid their first-year repatriation tax  installment without the knowledge that IRS would not be refunding excess  remittances of installments. The initial repatriation tax information issued  mid-filing season instructed taxpayers to make two separate payments— one for their income tax liability and one for their repatriation tax liability,  language that was later clarified. Subsequently, IRS announced that  excess payments would be applied to the unpaid portion of the taxpayer’s  liability and that IRS was legally precluded from issuing a refund of any  excess remittances.

TIGTA reported that for the 2017 tax year, 115 taxpayers filed repatriation  tax refund claims—amounting to $2.8 billion—which, according to TIGTA,  indicated that these were unintended overpayments. TIGTA  recommended that IRS take steps to inform taxpayers when the next  payment is due and how their excess payment was applied to their  repatriation tax balance. According to TIGTA, IRS agreed to these  recommendations and is taking steps to implement them.

Enhanced Collaboration Was Critical for TCJA Implementation, but IRS Has Not Documented These Practices

Because of the magnitude of the changes and the immediate effective  dates of many TCJA provisions, Chief Counsel collaborated earlier and  more frequently with IRS BODs to implement TCJA. IRS officials said  these enhanced collaborative efforts were best practices and critical to  timely TCJA guidance development. Although there are some guidelines  in the IRM for intra-agency coordination, IRS has not identified instances  when this enhanced collaboration would benefit guidance development or  taken steps to document these parameters to assure consistency and  accountability.

Based on our analysis, we found that IRS officials leveraged several key  practices for implementing collaborative mechanisms to support TCJA  implementation, including identifying leadership roles and responsibilities,  identifying relevant participants, and using resources to facilitate  collaboration, which we identified in prior work. For instance, IRS  formed TRIO to manage TCJA implementation and centralize  accountability and decision-making. Additionally, Chief Counsel’s earlier  and more frequent work with the BODs allowed for participants with  appropriate skills and expertise to contribute to guidance development  and highlight potential enforcement concerns. This collaboration included  weekly, and in some instances daily, meetings for participants to provide  implementation status updates. Further, IRS developed joint project  documents and leveraged collaborative technologies to track and manage  TCJA implementation and facilitate sharing across the agency.

IRS officials stated that there were several benefits to this enhanced  collaborative approach, including: more efficient and effective development of comprehensive  regulations, for instance guidance for the QBI provision;  faster decision-making on time-sensitive regulations; earlier identification of tax administration and enforcement concerns; mitigation of potential enforcement challenges, such as narrowing the  definition of specified trades and businesses on the QBI deduction;  and ability to begin compliance planning earlier.

Our prior work on interagency collaboration mechanisms and the  Standards for Internal Control in the Federal Government identify areas  for agencies to improve and sustain collaboration. For instance, we  identified that frequent communication can help facilitate working across  agency boundaries and that articulating agreement in formal documents  that are regularly updated and monitored can strengthen commitment to  working collaboratively. In addition, federal internal control standards  state that agencies should ensure stakeholders from different parts of an  organization communicate to help the agency fulfill its mission.

Chief Counsel officials acknowledged the value of this enhanced  collaboration but as of December 2019 had not identified or documented  criteria for when this collaborative approach would benefit guidance  development and help achieve agency goals. Chief Counsel officials said  that the guidelines as written provided flexibility in determining when to  collaborate early with other offices during TCJA implementation. In  addition, officials said that the value of collaboration depends on the  scope and complexity of a tax law change and the decision to use earlier  and more frequent collaboration would need to consider tradeoffs and  other considerations such as other IRS priorities and the effects of pulling  employees away from other activities.

However, IRS officials described the enhanced collaboration used  throughout TCJA implementation as unprecedented and key to  successful implementation, indicating that identifying the situations when  this earlier and more frequent collaboration would make sense and  updating relevant documentation to reflect this could benefit IRS guidance  development. Documenting the parameters and procedures for enhanced  collaboration practices would better position IRS to be prepared to use  enhanced collaboration during implementation of complex or time- sensitive changes to the tax code. For example, enhanced collaboration  may help to identify and mitigate potential administrative effects of  regulatory design decisions, potentially helping IRS identify more cost- effective alternatives within the limits of available resources. These  potential benefits are also supported by our past work on regulatory  design during the rulemaking process. Specifically, we found that it is  important for agencies to consider enforcement and compliance issues  during regulation development because different design choices have  implications for future enforcement and compliance efforts.

Treasury’s Economic Analyses Omit Key Considerations of Distributional Effects of Tax Regulations

While developing regulations to help implement and administer TCJA  provisions, Treasury and IRS made discretionary decisions in the  regulatory development process that have meaningful effects on  taxpayers’ tax liability and government revenue collection that were not  included in their analysis. Changes to tax liability have distributional  consequences, as taxes transfer money from taxpayers to the  government, but do not directly affect the total resources available to the  country. These distributional effects are one element that should be  recognized during the regulatory development process, along with costs  and benefits of the regulations. While we found that, among the  provisions we looked at more deeply, Treasury’s analyses did recognize  some costs and benefits related to factors such as administrability,  compliance costs, and economic distortions, Treasury’s analyses did not  generally assess the distributional effects, including effects on tax  revenue collection, the regulations had as a result of changes in tax  liability.

As part of the regulatory development process, Treasury and IRS must  adhere to Executive Order (E. O.) 12866, which establishes standards for  regulatory planning and review. E.O. 12866 instructs agencies to select  regulatory approaches that maximize net benefits, including economic,  distributive, and equity effects, unless a statute requires another  regulatory approach. Any regulation that is determined to be significant  must be submitted to OIRA for review, along with an analysis of the costs  and benefits of that regulation.

However, until 2018, Treasury’s and IRS’s tax regulations were not  regularly subjected to analysis and review under E.O. 12866. In many  cases, tax regulations were deemed not significant under E.O. 12866,  and as a result, Treasury and IRS did not perform regulatory analyses  and they were not reviewed by OIRA. Some tax regulations were also  exempt from OIRA review, which was otherwise required under E.O.  12866 based on an agreement between OMB and Treasury. However,  E.O. 13789, signed in 2017, instructed the Secretary of the Treasury to  reconsider the scope of that exemption, and in April 2018, Treasury and  OMB signed a Memorandum of Agreement (MOA) subjecting certain tax  regulations to OIRA review.

In accordance with the MOA and the requirements in E.O. 12866, for  regulations deemed significant, Treasury is responsible for conducting  and producing an analysis of the impact of the regulations, including an  assessment of costs and benefits. Tax regulations with an anticipated  annual non-revenue effect of $100 million or more are deemed  economically significant, and are subjected to this additional analysis.  Under the MOA, Treasury was allowed a 12-month transition period to  obtain reasonably sufficient resources to meet the additional  requirements for economically significant regulations. The transition  period expired in April 2019, and any new regulations will be subjected to  these additional analyses where applicable.

E.O. 12866 and OMB Circular No. A-4, a guide developed by OMB for  agencies to perform regulatory analyses required by E.O. 12866,  emphasize that agencies should assess the costs and benefits of  proposed regulations. In some cases, regulations may transfer money  from one group to another, creating no net costs or benefits to society as  a whole, but nonetheless affecting those who have been affected by the  transfers. When regulations have this effect, they are said to have a  distributive impact on society, and both E.O.12866 and OMB Circular A-4  instruct agencies to consider distributive effects.

Because revenues raised through taxation are transfers and are not costs  or benefits to society, OMB Circular A-4 instructs agencies to develop a  description of the distributional effects of a regulation that is separate  from the costs and benefits. Such an analysis should recognize the  effects of the regulation across the population and the economy, divided  up in various ways, such as income groups, race, sex, industrial sector, or  geography.

Treasury’s and IRS’s significant proposed and final rules used to  implement TCJA included a section analyzing the impact of the  regulations; however, we found these analyses generally overlooked the  distributional effects of the regulations arising from changes in tax liability  and revenue collection. The illustrative examples below from TCJA  regulations highlight the potential effects of Treasury’s and IRS’s  regulatory decisions on tax liability and how those were reflected in  Treasury’s analysis.

Eligibility for QBI deduction for real estate and insurance  brokers. The QBI deduction provides a deduction of up to 20 percent  of QBI, but depending on a taxpayer’s taxable income, a specified  service trade or business (SSTB) may not be a qualified trade or  business and therefore may not produce QBI. The statute defines  SSTBs as trades or businesses within a list of broadly-identified fields.  Treasury and IRS determined that guidance clarifying the types of  trades or businesses that would be considered to be within the listed  fields was needed. As one example, the statute specified that  “brokerage services” are considered an SSTB, but Treasury and IRS  regulations further specified that “brokerage services” was limited to  securities brokers, while other brokerage services, including real  estate brokers and insurance brokers, were explicitly excluded from  the definition of “brokerage services.” The choices Treasury and IRS  made when providing additional guidance on SSTBs will significantly  affect the tax burden and revenue collected from certain businesses.

In its analysis of its decisions regarding the definitions of SSTBs,  Treasury stated that articulating which business activities were or  were not considered SSTBs would provide clarity to taxpayers and  prevent similarly-situated taxpayers from behaving differently, which  could potentially create economic inefficiencies. Treasury did not  address the fact that decisions about which business activities would  be considered SSTBs would affect eligibility for a 20 percent  deduction, and would affect the distribution of resources between  certain taxpayers and the federal government.

According to data from IRS’s Statistics of Income on sole  proprietorships—one of several business structures that can earn a  QBI deduction—categories representing insurance agencies and  brokerages, and offices of real estate agents, brokers, property  managers, and appraisers recorded more than $35 billion in net  income in 2016. The precise effect of not being categorized as an  SSTB depends on the specific circumstances of the individual  businesses, but given the magnitude of their annual net revenue,  excluding real estate and insurance brokers from the definition of  SSTB could lower their collective tax burden by billions of dollars  annually. This could result in a reduction in federal tax revenues  compared to the regulatory alternative of considering these sectors to  be SSTBs.

End date for opportunity zones. An investor who invests capital  gains in a Qualified Opportunity Fund, and maintains that investment  for at least 10 years, is eligible to make an election at the time of sale  that would render such gains no longer taxable. TCJA’s statutory  language did not specify an end date for investors to make this  election, or a point at which taxpayers must dispose of investments in  opportunity funds and recognize future capital gains to be taxed. IRS’s October 2018 proposed regulations for opportunity zones stated that  investors will have until December 31, 2047, to dispose of  investments and make this election. The decision to set an end date  of December 31, 2047, was one of four approaches discussed in the  proposed regulations. The other options considered were to offer no  further guidance on this issue, to specify no end date to elect the gain  exclusion, and to allow the election until December 31, 2047, but  without disposition of the assets.

In its analysis of this decision, Treasury considered how providing  clarity would help taxpayers make more efficient investments in  opportunity zones. Treasury also considered how forced dispositions  could lead to economic inefficiencies, while a longer time horizon  could lead to greater investment, but more administrative costs.  Treasury did not, however, assess how the different decisions would  influence the ultimate tax liability of investors. The determination of a  disposition date can have a potentially large effect on tax liability. For  example, if a taxpayer invested $1 million into an opportunity fund in  2019, and that grew at a 7 percent rate, it would be worth  approximately $2 million after 10 years, $3.9 million after 20 years,  and $6.6 million in 2047. Under Treasury’s and IRS’s regulations,  such capital gains—$5.6 million in this example—would be exempted  from taxation.

We found that in the course of developing regulatory impact analyses for  TCJA regulations, Treasury generally excluded any analysis of  distributional effects due to changes in tax revenue collection. In the  examples above, Treasury’s decisions would significantly affect tax  liability for certain taxpayers, which were not reflected in Treasury’s  analyses of the regulations.

Treasury officials did not conduct distributional analyses related to  revenue effects because in their view, the MOA instructed them to focus  only on non-revenue effects and superseded E.O. 12866. This view is  reflected in Treasury’s guidance to staff on how to conduct regulatory  analyses. Specifically, Treasury’s internal guidance instructs staff to  conduct distributional analyses, describing how benefits, costs, and  transfers are distributed among subpopulations. This guidance further  states that staff should not include transfers of revenue to the  government, and Treasury officials told us that they did not think they  should include any analysis of these effects in their regulatory impact  analyses.

However, Treasury’s understanding that revenue effects should be  excluded from its analyses is inconsistent with the MOA and OIRA’s  position. While Section 1 of the MOA between Treasury and OMB  excludes revenue effects for the purposes of determining whether or not a  regulation is economically significant, and thus subject to OIRA review,  that limitation does not appear elsewhere in the MOA, and the MOA does  not state that revenue should be excluded from all analysis. OIRA officials  told us that that all agencies, including Treasury, are subject to the same  requirements of E.O. 12866, and that outside of the MOA, OIRA had no  agreements with Treasury that would otherwise modify the requirements.

OIRA officials we spoke with reiterated that all agencies, including  Treasury, should generally analyze the distributional impact of their  regulations, and OMB’s guidance identifies changes in tax revenue as an  example of a transfer that would have a distributional impact. OIRA  officials stated that they recognize conducting these analyses was a new  procedure for Treasury, and that Treasury officials were still learning how  to apply the analytical framework in Circular A-4.

Treasury’s internal guidance for conducting regulatory impact analyses is  inconsistent with the standards in E.O. 12866 and OMB Circular A-4 that  all agencies are expected to follow. Considering distributional effects  related to tax revenue in the analyses would improve transparency  surrounding how decisions made by Treasury and IRS affect various  groups across the population. Robust analysis ensures that regulatory  choices are made after appropriate consideration of the likely  consequences, and provides transparency to the public and  policymakers. Our prior work emphasizes the importance of transparency  in the rulemaking process, and specifically that a regulatory impact  analysis consistent with E.O. 12866 and OMB Circular A-4 provides a  systematic framework for identifying and assessing the economic  tradeoffs associated with alternative regulatory choices.

By excluding analyses of distributional effects due to changes in tax  liability, including effects on tax revenue collection, Treasury and IRS risk  making regulatory decisions that have significant economic effects  without fully understanding the consequences of their decisions. Further,  the consequences of Treasury and IRS decisions and the tradeoffs they  considered are not transparent to the public without an acknowledgement  of the distributional effects of tax revenue changes. A lack of full  information may also inhibit OIRA’s ability to effectively review the  regulations and limit decision makers’ understanding of the effects of a  law.

IRS Data on TCJA Implementation Were Not Consistently Reliable, but Publicly- Available Information Indicates IRS has Made Considerable Progress in Some Areas Reliability of Data on TCJA Implementation Status Could Be Improved

Data-reliability issues in IRS’s documents for tracking implementation of  TCJA’s business and international provisions made it challenging to  characterize both the scope and status of implementation activities.  However, based on IRS data we corroborated with publicly-available  information (e.g., published guidance), we determined that IRS has made  considerable progress in implementing many of TCJA’s business and  international provisions through issuing guidance, updating IT systems,  and training IRS staff. Given the magnitude of changes and near  immediate effective dates, tax professionals we interviewed generally  spoke favorably about IRS’s pace in developing TCJA guidance and the  quality of the guidance developed.

We found errors and inconsistencies in IRS’s documentation used to  track TCJA implementation. While we did not find errors and  inconsistencies in the majority of IRS’s TCJA implementation tasks, we  did identify multiple instances of inaccurate recording of the task status,  conflicting information in separate tracking documents, and several other  miscellaneous errors. Examples include:

Seven TCJA provisions and six updates to the IRM were inaccurately  identified as complete in the tracking document for the responsible  BODs, potentially delaying work on implementation.

IRS had cancelled IRM updates for five IRM sections for one  provision, but tracking documents across multiple BODs did not  accurately capture this fact, which could result in a misallocation of  staff and resources.

IRS officials could not verify whether all tasks included in TRIO’s  Enterprise Integrated Project Plan (EIPP) tracking document had  been carried over to the new tracking documents following the  dissolution of TRIO, increasing the risk of previously planned tasks  mistakenly being left incomplete.

At least 22 unique identifiers used to track tasks across iterations of  TRIO’s EIPP tracking document were inconsistent between updates,  limiting IRS’s ability to accurately track changes in guidance planning  over time.

The lack of consistency and accuracy across IRS’s tracking  documentation is not in accordance with Standards for Internal Control in  the Federal Government. These standards direct management to use  quality information to make informed decisions and evaluate the entity’s  performance or efficiency in achieving key objectives and addressing  risks.

Changes in IRS’s method of monitoring TCJA implementation status  contributed to the data-reliability issues we identified. Early TCJA  implementation efforts involved close coordination among multiple  internal organizations. When TRIO was responsible for coordinating  implementation efforts, it maintained a unified tracking system as part of  its coordination management. However, when TRIO was disbanded,  BODs and other IRS organizations used several different methods of  tracking implementation status. According to IRS officials, in some cases,  these new methods were not compared with TRIO’s documentation to  ensure all necessary tasks were carried over. Additionally, the  implementation tracking tools used by these organizations were not  uniform in data included, format, or the frequency with which they were  updated. These issues may impede the ability to coordinate internally and  to monitor overall implementation status.

IRS officials stated that these inconsistencies did not pose obstacles to  implementation, and that the IRS organization with overall responsibility  for a given task was accurately tracking implementation status. While IRS  officials said the inconsistencies did not impact implementation,  developing a process or modifying the existing process to accurately and  consistently track the implementation status of provisions could improve  IRS’s ability to prioritize resources and coordinate implementation efforts.  For example, such tracking could help prevent misunderstandings  regarding the implementation status of a provision that could lead  management to reallocate resources away from ongoing implementation  tasks. Further, it could help ensure IRS’s implementation efforts are  efficient, as each BOD would have the same information to help  coordinate prioritization efforts.

While TCJA implementation is a one-time effort, IRS officials stated that  efforts will extend beyond a decade into the future, as some provisions  (such as opportunity zones) may require further guidance as key  deadlines are reached. Additionally, IRS has identified the need for  further guidance or implementation tasks as implementation has  progressed, and the timeline for full implementation may be extended as  IRS receives new information or observes changes in taxpayer behavior.

Further, IRS is implementing provisions of a new law reforming aspects of  the agency and may face similarly extensive implementation projects in  the future. The Taxpayer First Act, signed into law on July 1, 2019, calls  for several IRS reforms, including changes to rules related to enforcement  as well as modernizing IRS structure and technology, among other  things.

Management may be able to identify issues with, or improvements to, the  implementation process using quality information on implementation  status. By improving the ability to monitor and evaluate implementation  progress, IRS will be better equipped to evaluate existing implementation  processes. IRS also will be better positioned to effectively implement  significant tax law or organizational changes in the future.

IRS Made Considerable Progress by Publishing Approximately Half of Total Guidance for High-Priority Provisions, but Has Significant Work Remaining

IRS has attempted to determine the amount of guidance required for  TCJA implementation throughout the implementation process, but the  amount of guidance has fluctuated for several reasons. For instance, in  July 2018 IRS planned to issue 40 proposed regulations and 35 final  regulations by December 2021 to implement the 86 business and  international provisions. But by the end of the 2019 fiscal year, IRS  planned to issue 53 proposed regulations and 51 final regulations by  February 2022. According to IRS officials, they initially expected to issue  less guidance than now planned, but as work progressed, they  discovered they would need to issue more guidance or issue some  guidance through multiple regulations to address taxpayer comments and  inquiries. Conversely, in some cases IRS determined that some guidance  initially planned was no longer necessary after further consideration.

As of the end of fiscal year 2019, IRS Chief Counsel reported that it had  issued 90 pieces of guidance and was developing another 43 to  implement the 86 business and international provisions of TCJA. Overall,  as of the end of fiscal year 2019, IRS publicly issued approximately half of  planned official guidance. As shown in figure 2, for the 12 provisions that  IRS identified as high-priority, the agency issued 13 of 19 planned  proposed regulations and three of 18 planned final regulations.

IRS missed internal target dates for issuing 10 guidance documents  initially targeted for publication by the end of the fiscal year, including  three final regulations. According to IRS officials, several factors affected  IRS’s ability to issue guidance within planned time frames:

Ambitious project planning. Scheduled completion dates for some  tasks were “aspirational” and developed early in the implementation  process. Officials stated that they understood from the beginning of  implementation that their planned dates might change, and that they  did not expect there to be any impact on taxpayers.

Revised regulatory review process. As discussed earlier in this  report, beginning in April 2018, OIRA began subjecting more tax  regulations to further review as agreed to in the MOA between OMB  and Treasury. Based on our analysis, from July 2018 to September  30, 2019, OIRA took an average of about 38 calendar days to review  25 TCJA business and international regulations. See appendix III for  a table of all TCJA regulations relating to business and international  provisions reviewed by OIRA and associated review times.

Partial lapse in appropriations. According to IRS officials, a partial  lapse in appropriations from December 22, 2018, through January 25,  2019, contributed to implementation delays. For example, IRS officials  estimated that the issuance of final regulations for the qualified  business income deduction and repatriation tax was delayed 1 to 2  weeks. While IRS was generally able to continue working on TCJA  implementation tasks, it had to allocate some resources towards  unplanned administrative tasks during this period. During a lapse of  appropriations, the Antideficiency Act generally restricts agencies  from continuing operations funded by annual appropriations.  However, Congress passed a separate 2-year appropriation for IRS to  perform TCJA implementation activities.

Some IRS personnel that would otherwise have been furloughed were  instead able to continue TCJA implementation work through the use of  this special appropriation. Additionally, IRS had to develop justifications  for the Federal Register to publish TCJA regulations during the lapse in  appropriations that it would not have had to do in the absence of a partial  lapse in appropriations, which reduced available resources for  implementation tasks.

IRS officials also stated that they faced issues working with partners at  Treasury and OIRA. Treasury’s Lapse in Appropriations Plan states that  Office of Tax Policy staff could work on policies to restore appropriations  and developing revenue estimates for pending appropriations  negotiations, but does not include work on TCJA. Further, while OIRA  continued regulatory review in certain circumstances, approximately 67  percent of OMB’s staff was furloughed.

Of the remaining guidance, IRS plans to issue 13 of the remaining final  TCJA regulations related to business or international provisions by  December 31, 2019. IRS plans to issue 12 final regulations in 2020, three  in 2021, and one in 2022. It has not determined publication dates for 14  final regulations.

To implement TCJA, IRS has provided a substantial amount of written  guidance. Between TCJA’s enactment and the end of fiscal year 2019,  IRS published 1,383 pages of guidance related to TCJA’s business and  international provisions in the Internal Revenue Bulletin, out of a total of  4,064 pages published during that period. By comparison, from 2013 to  2015, IRS published approximately 2,000 pages of guidance annually.  IRS also issued more than 115 pieces of business- and international- related products, including news releases, frequently asked questions,  virtual webinars, YouTube videos, and targeted publications, such as the  example in figure 3.

Tax practitioners we spoke with were generally favorable about IRS’s  pace in developing TCJA guidance and the quality of the guidance  developed. For example, they generally stated that IRS’s multi-pronged  approach to providing both official guidance and other information  sources was helpful and allowed practitioners to understand of the likely  impacts of tax reform prior to the release of final regulations better.  Additionally, Tax Notes—a well-regarded publisher of a collection of  professional tax products—named the IRS’s tax reform regulatory team  as Person of the Year for 2018 for issuing many TCJA regulations in less  than a year.

IRS Prioritized TJCA IT Efforts over Other IT Activities Prior to the 2019 Filing Season, and Plans to Complete Additional Activities before the 2020 Filing Season

According to IRS officials, IRS’s Information Technology organization  completed all TCJA tasks that the organization agreed to complete prior  to the opening of the 2019 filing season, including updates to electronic  forms and the underlying technology IRS uses to receive returns.  According to IRS officials, they completed these tasks by prioritizing  TCJA work over other tasks and modifying its routine processes for  implementing IT changes.

IRS’s Information Technology organization also worked with the BODs to  determine which data were most important to have in Extensible Markup  Language (XML) format, which is more accessible than data in Portable  Document Format (PDF) format. While BOD officials requested  programming for TCJA-related requirements that would necessitate that  the Information Technology organization enable forms in XML format,  IRS’s Information Technology organization ultimately determined that it  could not deliver updates for all TCJA affected forms in advance of the  2019 filing season, and forms where IT could not deliver updates in XML  format would be implemented in PDF format. For example, according to  IRS officials, they prioritized having tax year 2018 XML data for the  repatriation tax because this tax was immediately effective for tax year  2017, had a short-lived time frame, and presented challenges for  monitoring. BODs requested that all affected forms be converted for the  2020 filing season.

To further facilitate the implementation of TCJA-related IT tasks, IRS  officials told us that they designed a framework to streamline  communication between the Information Technology organization, subject  matter experts, and the IRS BODs. These sessions enabled staff to work  through and identify IT requirements in real time, rather than requiring  Information Technology organization staff to wait until the BODs  submitted a work request to begin work.

As of October 2019, IRS’s Information Technology organization had  identified an additional 124 TCJA-related tasks for the 2020 filing season.  Officials expected to complete these tasks prior to the filing season.  According to IRS documentation and officials, these tasks include  updating underlying programming of IT systems to capture tax return  information in a way that can be more easily used for compliance  purposes, updating critical IT systems, and implementing error resolution  codes to correct some mistakes on submitted returns. While the  Information Technology organization had not yet approved all work and  some TCJA requested work was pending analysis or approval in its work  tracking spreadsheet, according to Information Technology organization  officials, they are aware of the work and proceeding with implementation  for the Modernized e-File application, the system used to file returns  electronically.

IRS Began Larger Scale In-Person Training at End of Fiscal Year 2019 and Will Continue Training Efforts in 2020

According to IRS documentation, the agency has begun training staff on  several TCJA provisions, including high-priority provisions, and plans to  deliver additional training in 2020. According to IRS, workforce training is  a critical component of tax law implementation to ensure that the  workforce is equipped to identify and address potential audit issues  associated with the new tax law provisions as well as to provide the  appropriate level of taxpayer service.

According to IRS documentation and officials as of the end of fiscal year  2019, the agency delivered training for business and international TCJA  changes in multiple formats, including virtual and in-person training.  These sessions have addressed at least 28 of the 69 business and  international provisions identified as requiring training. IRS began larger  scale in-person training in August 2019 and is developing content for  further training in fiscal year 2020. The in-person training primarily  addresses high-priority TCJA provisions such as QBI deduction,  opportunity zones, the repatriation tax, the limitation on the interest  deduction, the tax on global intangible low-taxed income, and the base  erosion and anti-abuse tax. IRS officials said that their training efforts  have been a major undertaking and that they focused their training efforts  on high priority provisions and provisions that affected a large number of  taxpayers. Some of these training sessions will culminate in an interactive  risk assessment exercise. IRS planned to train about 8,500 employees in  these sessions.

IRS plans to continue TCJA training in 2020 as IRS finalizes regulations.  According to SB/SE’s implementation tracking documentation, it plans to  complete training by the end of 2020. According to LB&I documentation, it  plans to hold virtual training in March, May, and June 2020 addressing,  among other things, some high priority provisions, including the  repatriation tax and base erosion and anti-abuse tax.

Aspects of TCJA Present Compliance Challenges for IRS and Taxpayers

Lack of Final Regulations Create Uncertainty for Taxpayers and Enforcement Challenges for IRS

Treasury did not 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.  Specifically, of the 51 planned final regulations to implement TCJA  business and international provisions, Treasury issued five within the 18- month time frame. Treasury also issued one temporary regulation within  this time frame. Treasury did not release any final regulations for eight of  its 12 priority provisions.

As discussed earlier in this report, taxpayers and other stakeholders  appreciated the supplemental information Treasury provided in the  absence of final regulations. According to IRS Chief Counsel officials,  however, a significant effect of relying on proposed regulations rather  than final regulations is uncertainty. In instances where Treasury has yet  to issue regulations or any other guidance, taxpayers must rely on the  statutory language to understand the law. For example, LB&I officials said  that taxpayers may not be able to correctly calculate tax for foreign  branch losses because IRS included limited information on related forms  as final guidance had not yet been issued.

Similarly, tax practitioners we interviewed cited several provisions in need  of additional guidance and identified challenges associated with those  provisions that have the potential to affect taxpayers’ ability to comply  with the law. Challenges identified by tax practitioners we interviewed  included confusion regarding and challenges related to the definitions of  “related party” and “interest” in the proposed regulations for the limitation  on the deduction for interest and difficulty for individuals and corporations  to understand and comply with international changes given the  interdependence of several of the international provisions. A September  2019 Treasury Inspector General for Tax Administration (TIGTA) report  also raised concerns related to taxpayers’ ability to comply with the  international provisions.

Further, proposed regulations are subject to change when Treasury  finalizes them, which could create additional burdens for taxpayers. For  example, Treasury’s proposed rule—issued in August 2018—for  determining whether a foreign corporation’s earnings are subject to the  repatriation tax was modified from a 5-percent threshold for application of  the special attribution rules relating to partnerships and trusts to a 10- percent threshold under the final regulations—issued in February 2019.  Because the repatriation tax was immediately effective, taxpayers needed  to pay their tax liability, or make installment payments towards that  liability, before IRS was able to finalize its regulations.

Some taxpayers who would have been subject to the tax had the  proposed regulations been finalized without change may not be subject to  this tax because of changes between the proposed and final regulations,  and any payments towards repatriation tax liability would no longer be  needed. According to IRS officials, taxpayers who initially made repatriation tax payments but are not subject to the tax under the final  regulations will need to file an amended return to receive a refund of their  repatriation tax payments.

The lack of finalized guidance can also create challenges for IRS in the  agency’s efforts to ensure compliance with the new law. For example,  LB&I officials told us they have identified form changes needed related to  at least one TCJA provision for which Treasury had yet to issue final  regulations, but they need to be mindful when proposing form changes  because final regulations could require additional form changes and could  require rework. Further, in September 2019, TIGTA reported that the lack  of final of final guidance delayed training for LB&I staff, which could  hinder LB&I’s ability to respond to emerging compliance risks.

According to IRS Chief Counsel officials, if IRS believes that a rule  articulated in proposed regulations under a statutory provision is correct,  it may proceed to enforce that interpretation of the statute in the absence  of final regulations. However, in the event of litigation, the interpretation  set forth in the proposed regulations would not carry the same weight as  final regulations.

IRS may also face additional challenges administering the law in  instances where the agency has yet to issue proposed regulations.  Treasury can issue final regulations that are retroactively effective to the  proposed regulations. As of the end of fiscal year 2019, Treasury had not  issued 27 planned proposed regulations for business and international  provisions. Generally final regulations not issued by the end of calendar  year 2019 would not be effective until 2020. According to TIGTA, if IRS  makes substantial changes to the proposed regulations, Treasury and  IRS may decide not to apply those revisions retroactively to the date of  the proposed regulations.

While Treasury was unable to issue all final regulations within the 18- month time frame and before taxpayers needed to begin filing tax returns  affected by TCJA changes, IRS took actions to mitigate the potential  impact of the lack of final guidance. According to IRS officials, they  prioritized which regulations needed to be issued to be retroactively  applicable to the date of the law’s enactment. For example, Treasury’s  QBI deduction regulations included anti-abuse rules to prevent taxpayers  from being able to engage in transactions that will artificially increase their  deduction. Treasury’s repatriation tax regulations also included rules  preventing taxpayers from being able to take actions to reduce their  repatriation tax liability. Further, in one instance, Treasury issued a  temporary regulation in a situation where Treasury did not have time to  issue proposed and final regulations to prevent abuse of TCJA changes  related to a deduction for dividends received from certain foreign  corporations.

IRS May Face Challenges Verifying Taxpayer- Reported Information for Some Provisions

We identified 11 business and international provisions where TCJA’s  statutory language either required or authorized additional information  reporting to administer and enforce them. These include the QBI  deduction, repatriation tax, and base erosion and anti-abuse tax. TCJA  changes also enabled IRS to address a prior reporting gap related to  foreign branch activity that will help with compliance and enforcement  efforts, according to LB&I officials.

As shown in the examples below, in some instances, the statute did not  include an information reporting framework to enforce provisions, and IRS  has taken some steps to mitigate information reporting gaps.

Limitation on interest deduction. Tax practitioners we interviewed  told us that they doubted that IRS would be able to verify information  related to controlled foreign corporations that are subject to the  limitation of business interest expense because there are limitations  on information reporting from other countries. According to IRS  officials, the statute made substantial changes to this code section  and did not correspondingly include a framework for IRS to require  information reporting.

IRS is taking mitigation actions to help ensure compliance despite the  lack of information reporting framework. For example, according to  officials, IRS has the authority to require information from taxpayers  and developed a new form to collect information needed to ensure  taxpayer compliance with this change. In addition, IRS is planning to  make changes to another form to help with compliance efforts.

Opportunity zones. While the statute did not grant IRS specific  authority to require information reporting for opportunity zones—a tax  expenditure that is intended to spur economic growth in low-income  areas—IRS has general authority to require information reporting and  plans to require and use information reporting to ensure compliance  with this provision. As shown in table 3, IRS plans to use information  reported on four forms.

Taxpayers who invest in qualified opportunity funds may qualify  for potentially large benefits that are time dependent. When  taxpayers initially invest eligible capital gains in qualified  opportunity funds, they can defer the tax due on those gains until  the earlier of 2026 or when taxpayers dispose, in whole or in part,  of (e.g., sell or exchange) those investments. Specifically,  taxpayers receive an increase in the basis of their investment in  the qualified opportunity fund if they hold the investment at least 5  years and an additional increase in their basis if they hold their  investments an additional 2 years.

Taxpayers who hold investments at least 10 years can elect to  have their investments valued at the fair market value when they  dispose of the investments, and thus would not need to pay taxes  on any gains on their initial investments.

IRS plans to use taxpayer-reported information and possibly some  fund-reported information on the forms listed above in table 3 to  identify taxpayers who have invested in qualified opportunity funds  to confirm eligibility for tax benefits for investing in and holding  those investments in qualified opportunity funds.

In other instances, third-party information is not available for IRS to  corroborate taxpayer-related information. For example, above certain  income thresholds only businesses engaged in an eligible trade or  business qualify for the QBI deduction and this information is self- reported.

Our past work has found that one of the important factors contributing to  the tax gap is the extent to which information is reported to IRS by third  parties. For example, according to 2011–2013 IRS data, for income  types where there is little or no third-party information reporting (e.g.,  business income), taxpayers misreported more than half of this income.

Without reliable information reporting, IRS will likely need to conduct  labor-intensive audits, such as correspondence or face-to-face audits, to  ensure compliance with certain TCJA provisions.

The potential need to conduct labor-intensive audits could create  challenges for IRS given recent trends in audit rates and staffing  reductions. Specifically, IRS audit rates of large corporations with assets  of $10 million or greater declined from 17.7 percent in fiscal year 2011 to  7.9 percent in fiscal year 2017. We previously reported that IRS’s staffing has declined each year since 2011, and has significantly reduced  enforcement activities. In September 2019, TIGTA reported LB&I had  difficulty hiring personnel with the skills needed for TCJA  implementation. This could limit IRS’s ability to conduct correspondence  or face-to-face audits to ensure taxpayer compliance, including TCJA  provisions.

LB&I and SB/SE officials expressed their confidence in IRS’s ability to  audit TCJA provisions sufficiently. SB/SE has developed compliance  plans for TCJA provisions identified as having the potential for fraud.  SB/SE officials said TCJA work will be prioritized and SB/SE can use  some filtering to help identify noncompliance. For example, regarding the  QBI deduction, they said IRS may be able to identify returns that need  further review based on tax return data. According to LB&I officials, they  planned to hire an additional 600 staff, including about 300 revenue  agents by the end of fiscal year 2019, and as of the end of the fiscal year,  LB&I had selected 430 applicants to hire to help with compliance and  enforcement efforts.

Revenue agents are of particular importance to IRS’s enforcement efforts  as they conduct audits of tax returns. In March 2019, we reported that  IRS has skills gaps within its revenue agent workforce, and the agency  was taking action to address those gaps. For example, the agency  established communications with revenue agents to increase awareness  about detail and developmental opportunities, and was developing a plan  for more effectively including revenue agents in management training. We  recommended that IRS take actions to reduce skills gaps among revenue  agents, including developing schedules for skills assessments and  reporting on agency efforts to close those gaps. IRS agreed with our  recommendation and, as of December 2019, IRS plans to report on  efforts to close skills gaps among revenue agents by December 2021.

Limited Data Accessibility Creates Compliance Challenges for IRS

Because IRS had not yet updated all systems prior to accepting tax year  2018 (filing season 2019) returns, IRS was not able to capture all return  information in XML format—a format that allows for greater accessibility  and analysis. According to IRS documentation and officials, the agency  was unable to obtain Extensible Markup Language (XML) data for 11  provisions that LB&I and SB/SE had requested for tax year 2018,  including certain high-priority provisions. Instead, according to IRS  officials, the agency captured this information in PDF, which is  challenging for officials to use for data analytics and trend analysis.  According to IRS officials, examiners will be able to view the PDFs and  use that information if the return is selected for audit. Officials also told us  they have other ways to select returns for audit in the absence of XML  data.

While the agency does not have any agency-wide plans to retroactively  convert PDF data to XML data, which could help with compliance  analytics and planning, IRS is capable of conducting this work. For  example, IRS staff could transcribe, or manually enter, selected  information from returns filed on paper into IRS’s IT systems to process  these returns. Additionally, Information Technology organization officials  told us they could develop a program to convert PDF forms to an XML  format, if the effort is deemed a high priority.

Converting data into usable formats for compliance purposes would be  consistent with IRS’s strategic plan and Standards for Internal Control in  the Federal Government. IRS’s strategic plan includes a strategic goal to  advance data access, usability, and analytics to inform decision-making  and improve operational outcomes. Specifically, IRS is to use analytics  to improve enforcement efforts and maximize learning from tests and  data. According to Standards for Internal Control in the Federal  Government, agencies should use quality information to achieve their  objectives. As part of this, agencies should obtain data and process these  data into quality information.

LB&I officials said they are taking steps to convert their PDF data into  useable data for compliance purposes. According to LB&I officials, they  identified which provisions’ data would be useful to retroactively  transcribe and they are coordinating with other parts of IRS to complete  the transcription. They identified the data on forms related to certain new  TCJA provisions as a higher priority for transcribed data. According to  officials, they then coordinated with various IRS offices, including the Office of Research Applied Analytics and Statistics, that have the  capability to use optical character recognition technology to convert  certain forms for these TCJA sections into a more useable format.  Statistics of Income, a division within the Wage and Investment Division,  is providing clerical staff to perform data validation on the converted data.  According to LB&I officials, LB&I plans to use this information to help  develop filters and compliance models and it will enable them to conduct  analysis earlier than planned because they had not expected to have  access to this data.

Unlike LB&I, SB/SE had not reviewed the costs and benefits of converting  PDF forms for their provisions to determine which PDF forms, if any,  would be a good use of IRS resources to convert to XML format to help  with compliance planning. According to SB/SE officials, they did not know  IRS had the capacity to retroactively convert PDF data to XML format and  were unaware of LB&I’s efforts to convert select TCJA PDF forms to  useable data.

Assessing the costs and benefits of converting PDF data to a more  useable format, such as XML format, would be consistent with OMB  guidance on using cost-benefit analysis to support agency planning  efforts. OMB provides guidance to agencies for conducting economic  cost-benefit and cost-effectiveness assessments that promote efficient  resource allocation through well-informed decision-making. These  assessments should consider different alternatives to meet program  objectives along with a discussion of costs and benefits.

For provisions where IRS does not have XML data, IRS may not be able  to adequately identify both intentional and unintentional compliance risks  and may be missing opportunities to better ensure compliance with and  enforce TCJA provisions. For example, we previously reported that  without comprehensive transcribed data, examiners cannot immediately  access and review all data reported on tax returns, which burdened  taxpayers as well as made examiners less efficient in doing their jobs.  According to IRS officials, retroactively transcribed data would be helpful  to SB/SE for compliance planning and enforcement efforts, especially for  at least one TCJA provision. Further, taxpayers may think they are in  compliance and may not be alerted to their errors until IRS has data  stored in a format that can be analyzed more easily. Similarly, in October  2011 we reported that IRS said that having more tax return information  available electronically, such as through transcription, would reduce  burdensome examinations for compliant taxpayers, as well as facilitate  enforcement efforts, make case resolution faster, and increase  compliance revenue.

However, without an analysis of the costs and benefits of retroactively  converting PDF data to XML data, SB/SE cannot determine which PDF  forms would likely yield benefits that would outweigh the costs of this  effort. Management also cannot make an informed decision as to which  PDF data would benefit SB/SE if converted to XML format without this  information. While IRS may not have complete data on the potential  benefits of converting PDF data to XML data, high-level analysis could  show whether the potential benefits outweigh the costs. In instances  where IRS finds that potential benefits outweigh the costs, SB/SE and IT  could provide this information to management to inform its decision as to  whether the work is cost effective. Using this information, management  could determine if the work should be conducted, and if it should be a  high priority for SB/SE and the Information Technology organization.

As of the end of fiscal year 2019, IRS made considerable progress  implementing TCJA, however, much work remains, and IRS has publicly  issued approximately half of planned official guidance.

Given the magnitude and immediate effective dates for many TCJA  provisions, Chief Counsel collaborated earlier and more closely with IRS  BODs which enabled the agency to more efficiently and effectively  develop guidance that accounts for tax administration and enforcement  concerns. Moving forward, IRS can leverage the lessons learned from  this enhanced collaboration. By identifying situations when this earlier and  more frequent collaboration would benefit IRS’s guidance development  process and by updating any relevant policies or procedures to document  beneficial collaboration practices, IRS will be better prepared to  implement the next set of complex or time-sensitive changes to the tax  code.

In developing regulations for TCJA provisions, Treasury and IRS made  decisions that could potentially affect tax liability by billions of dollars per  year, which would have distributional effects on the economy, but these  effects were not included in their regulatory analyses. The distributional  effects of tax liability changes from regulations can be significant;  updating Treasury’s internal guidance to include analysis of these effects  in the rulemaking process would provide greater transparency to the  public, and would better inform decision makers who must determine  which regulatory alternative is the best to adopt.

Addressing data reliability issues in IRS’s tracking documentation could  better ensure that further TCJA implementation work is performed in an  efficient and timely manner and better enables IRS to identify  opportunities for improvements to their implementation process.  Additionally, this could enable IRS to better complete and evaluate  existing TCJA implementation processes, as well as be better equipped  to improve those processes for future application.

SB/SE’s ability to analyze tax return data and efficiently plan compliance  efforts is impeded by the lack of easily accessible and useable data for  certain TCJA changes. Taking steps to obtain these data in instances  where the potential benefits outweigh the costs would help the agency  identify return filing trends and potential noncompliance to help the  agency improve audit selection. It would also help SB/SE fulfill IRS’s  goals of improving operations using data analytics and would also help  the agency be able to effectively ensure compliance with and enforce  TCJA provisions.

We are making a total of five recommendations, including four to IRS and  one to Treasury. Specifically:  The Chief Counsel of the Internal Revenue Service, in coordination with  appropriate offices, should identify and document parameters and  procedures for applying enhanced collaborative approaches to regulation  and other guidance development with IRS Business Operating Divisions.  (Recommendation 1)

The Commissioner of Internal Revenue should develop a process to  accurately and thoroughly capture implementation status of ongoing  projects in accordance with Standards for Internal Control in the Federal  Government. (Recommendation 2)

The Commissioner of Small Business/Self Employed should coordinate  with appropriate IRS divisions or offices to identify the costs and benefits  of retroactively transcribing taxpayer data resulting from TCJA.  (Recommendation 3)

Based on the costs and benefits identified in recommendation 3, the  Commissioner of Small Business/Self Employed should determine which  TCJA provisions’ data should be converted into a more useful electronic  format for compliance and enforcement purposes and work with the  appropriate offices to obtain the transcribed data, as appropriate.  (Recommendation 4)

The Assistant Secretary of Tax Policy should update Treasury’s internal  guidance to ensure that Treasury’s regulatory impact analyses include  examination of the distributional effects of revenue changes when  regulations influence tax liability. (Recommendation 5)

We provided a draft of this report to the Commissioner of Internal  Revenue, the Secretary of the Treasury, and the Director of the Office of  Management and Budget for review and comment. In its written  comments, which are summarized below and reproduced in appendix IV,  IRS disagreed with the four recommendations addressed to that agency.

The Director of Treasury’s Office of Tax Analysis did not comment on the  merits of the recommendation directed to Treasury and provided other  comments by email, which are summarized below. In addition, IRS,  Treasury, OMB also provided technical comments, which we incorporated  as appropriate.

IRS disagreed with our recommendation to identify and document  parameters and procedures for applying enhanced collaborative  approaches to regulation and other guidance development  (Recommendation 1). IRS stated it believes that its Internal Revenue  Manual provides sufficient guidance and flexibility on when such  enhanced collaboration is appropriate and that establishing specific  criteria is likely to reduce the flexibility and independent judgement that  presently exists. Additionally, IRS said that this type of collaboration is not  needed for more routine tax law changes.

We are recommending that IRS document the collaboration procedures  that were cited as critical for implementing TCJA for use in specific  instances—such as during complex or time-sensitive tax law changes.   As discussed in the report and acknowledged in IRS’s letter, this  collaboration was particularly helpful for TCJA implementation and had  many benefits, such as faster decision-making and identifying  enforcement concerns earlier in the guidance development process.

We believe that by implementing this recommendation, IRS can help  ensure that institutional knowledge and beneficial practices from TCJA  implementation will be documented and effectively leveraged to support  implementation of future time-sensitive or complex tax law changes  without restricting IRS’s flexibility. Documenting procedures would ensure  IRS can retain organizational knowledge and mitigate the risk of having  that knowledge limited to a few personnel.

For our recommendation that IRS develop a process to accurately and  thoroughly capture implementation status of ongoing projects in  accordance with federal internal control standards (Recommendation 2),  IRS disagreed that a new process is needed and said that inaccurate  reporting of implementation status did not harm IRS implementation of  any TCJA provision.

As we acknowledge in this report, IRS officials told us implementation  was not impeded by data inconsistencies. However, accurately and  thoroughly capturing implementation status on ongoing projects would  provide accurate information to decision makers and could prevent  potential misreporting, mismanagement, or inefficient resource  investment in the future.  For example, our ability to use these data to  inform Congress of TCJA implementation status was impeded because  we deemed the data unreliable for this purpose. Our recommendation  does not require IRS to develop a new process for capturing and tracking  implementation status. If deemed appropriate, IRS could, instead, update  or modify existing processes in ways designed to ensure data reliability.

IRS disagreed with our recommendations to identify the costs and  benefits of retroactively transcribing certain taxpayer data and then to  implement transcription based on this determination (Recommendations 3  and 4). IRS stated that retroactively transcribing data is a resource- intensive, manual process.

We disagree with this assertion. LB&I is using optical character  recognition to convert PDF data into a more useable format, which is a  semi-automated process. Further, as also stated in this report, IRS IT  officials we interviewed told us they had the capability to develop a  program that would convert PDF data to a more useable format if IRS  management deemed it a priority.

In its response, IRS also states that the benefits of converting data to a  more useable format are unknown. We do not expect IRS to conduct a  complex and detailed cost-benefit analysis. Rather, as acknowledged in  this report, a high-level analysis of costs and benefits could help IRS  management determine what, if any, data would benefit compliance and  enforcement efforts. IRS could use readily available existing information  (such as the number of returns affected by a certain provision, LB&I and  IT cost data on conversion efforts already implemented, or the usefulness  of past compliance analytics in similar areas) to inform the analysis.

IRS also states that the potential noncompliance costs are unknown until  the agency completes audits of TCJA provisions. As we reported,  conducting audits is labor-intensive and IRS’s audit rate and enforcement  efforts have declined since 2011. Further, senior IRS officials we  interviewed stated that a limitation of taxpayer information in the PDF  format is that it is not easily analyzed. Therefore, we believe that  converting data in instances where the benefits outweigh the costs would  better position IRS to more effectively and efficiently pursue its mission of  ensuring taxpayer compliance.

In an email, the Director of Tax Analysis indicated that Treasury generally  did not agree with the report’s findings regarding its economic analyses.

The Director did not specifically comment on the merits of our  recommendation that Treasury update its guidance for conducting  regulatory impact analyses (Recommendation 5), but stated that the  analyses underlying Treasury’s tax regulations have fully complied with  the MOA established with OMB, which in Treasury’s view focuses on non- revenue effects.

We maintain that decisions Treasury and IRS made when developing  regulations to implement TCJA could potentially impact tax liability by  billions of dollars per year; however, Treasury’s internal guidance dictates  that these revenue effects should not be included in its economic  analyses of the regulations.

Amending Treasury’s guidance to ensure that impacts on tax revenue  and liability are included would make the guidance consistent with E.O.  12866 and OMB Circular A-4, which underlie the MOA and instruct  agencies to analyze the distributional consequences of regulations.  Including these effects of tax regulations, as we recommended, is  necessary in order to provide greater transparency to the public and  better inform decision makers, who must determine which regulatory  alternative is the best to adopt.

We are sending copies to the appropriate congressional committees. We  are also sending copies of the report to the Commissioner of Internal  Revenue, the Secretary of the Treasury, the Director of the Office of  Management and Budget, and other interested parties. In addition, this  report will be available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or lucasjudyj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs are on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This report (1) examines the Internal Revenue Service’s (IRS) processes  that it has in place to provide guidance to taxpayers on Public Law 115- 97, commonly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA)  business and international provisions; (2) assesses the economic  analyses Department of the Treasury (Treasury) conducted as part of the  regulatory development process; (3) evaluates IRS monitoring of  implementation of these provisions and describes implementation status;  and (4) examines any challenges that could affect IRS’s ability to  effectively administer these provisions. We defined business and  international provisions as provisions assigned to IRS’s Large Business &  International (LB&I) Division or Small Business/Self-Employed (SB/SE)  Division.

To examine IRS’s processes to provide guidance to taxpayers, we  analyzed IRS documentation, such as prioritization records, guidance  development records, and actual regulations and other guidance  documents (e.g., notices and news releases) and interviewed IRS  officials. Specifically, we reviewed IRS’s documentation of prioritization of  TCJA provisions and interviewed IRS officials in the Tax Reform  Implementation Office (TRIO) and the Office of Chief Counsel (Chief  Counsel) to examine the criteria IRS used to prioritize TCJA provisions for  implementation. We also reviewed IRS documentation on internal  coordination and interviewed IRS TRIO and Chief Counsel officials to  examine IRS’s strategy for and process of guidance development and  IRS’s plan to provide taxpayers with timely information. We used criteria  from Standards for Internal Control in the Federal Government and our  key practices for collaboration to determine the extent to which IRS’s  process for providing guidance to taxpayers was consistent with these  standards and best practices.

To assess the economic analyses Treasury conducted as part of the  regulatory development process, we analyzed IRS, Treasury Office of  Tax Policy (OTP), and Office of Management and Budget (OMB)  documentation detailing the regulatory development and decision-making  processes. We also interviewed officials from IRS TRIO, Chief Counsel,  OTP, and OMB Office of Information and Regulatory Affairs (OIRA).  Specifically, to identify the factors Treasury and IRS considered when  analyzing trade-offs presented by different regulatory options to decide  which regulatory options to select, we analyzed underlying regulatory  development documentation and interviewed relevant officials. For  example, we examined issues lists, internal memorandums, emails  discussing regulatory alternatives and their tradeoffs, and early drafts  regulations with internal comments.

We also analyzed TCJA published regulations and interviewed OIRA and  Treasury OTP officials to determine the extent to which Treasury OTP  and IRS included discussions of regulatory alternatives and cost-benefit  and economic analyses of these alternatives in the published regulations.  We used criteria from OMB regulatory guidance for executive branch  agencies to examine Treasury’s development and analyses of regulatory  alternatives. This guidance includes the Memorandum of Agreement  (MOA) between Treasury and OMB prescribing OMB review of tax  regulations under Executive Order 12866; Executive Order 12866,  Regulatory Planning and Review; and OMB Circular A-4, Regulatory  Analyses, to determine the extent to which Treasury’s analyses met OMB  guidance for developing regulations.

To describe the implementation status of business and international TCJA  provisions, we analyzed IRS project management documentation, such  as IRS’s Enterprise Integrated Project Plan (EIPP) for TCJA  implementation and publicly issued guidance and met with IRS officials.  Specifically, we analyzed EIPP to determine which tasks were guidance  or training related based on description, and developed keywords to limit  our dataset to only relevant tasks. We interviewed IRS TRIO officials to  ensure we accurately interpreted the description and status of the  identified implementation tasks. We monitored for progress on guidance  tasks by regularly reviewing IRS’s tax reform website and the Federal  Register, as well as SB/SE and LB&I’s implementation trackers and Chief  Counsel’s guidance planning documentation. We reviewed Chief  Counsel, LB&I, and SB/SE documentation (e.g., implementation trackers)  and met with those officials to understand their internal tracking  mechanisms for TCJA tasks and implementation status. To monitor  training tasks, we used the EIPP to establish which provisions would  require training and reviewed training documentation (e.g., training  schedules and materials) from LB&I and SBSE. To describe and monitor  information technology (IT) implementation status, we analyzed IRS’s  Information Technology organization’s TCJA implementation  documentation and met with IRS Information Technology organization  officials. We reviewed IRS’s IRM website to determine whether IRS had  updated its IRM sections as planned in its EIPP and other planning  documents.

While we identified potential data reliability issues with the EIPP, LB&I’s  implementation tracking documentation, and SB/SE’s implementation  tracking documentation (including inaccurate recording of the completion  status of multiple categories of tasks, inconsistent use of unique task  identifiers across tracking documentation, and potential errors introduced  in the transition from the EIPP to the subsequent tracking  documentation), we determined that the data were sufficiently reliable for  the purpose of reporting the status of guidance releases, training, and  overall TCJA IT tasks. We did not find the data sufficiently reliable to  report on the status of IRM updates. We were also unable to report on the  number of IT tasks specific to business and international provisions as a  subset of overall TCJA IT implementation because IRS’s IT organization  did not track work by TCJA section.

To assess the reliability of the EIPP, we met with TRIO officials to  understand how the EIPP was created and updated, as well as verified  information from outside sources, including the Federal Register and  IRS’s tax reform website. After identifying potential discrepancies in  LB&I’s and SB/SE’s TCJA tracking documentation, we followed up with  SB/SE and LB&I to determine whether the status of our selected tasks  was accurate and complete. SB/SE and LB&I provided responses and  statements indicating that the status of some tasks was not accurately  recorded. For example, we identified an instance where LB&I’s tracking  documentation had a provision’s final regulations listed as issued in July  2019, when IRS had yet to issue the guidance. Based on these  discrepancies and inconsistencies, we used criteria from the Standards  for Internal Control in the Federal Government to evaluate IRS’s project  management activities.

To identify the impact of OIRA’s effect on the status of TCJA  implementation, we analyzed information available on the agency’s public  website to determine the length of time of OIRA review of regulations. We  compared the length of time of OIRA’s review to agreed-upon time frames  for OIRA review of tax regulations in the Memorandum of Agreement,  Review of Tax Regulations under Executive Order 12866 (MOA) between  Treasury and OMB to determine the extent to which OIRA met the MOA’s  10- and 45-day time frames.

To examine challenges that could affect IRS’s ability to effectively  administer these provisions, we analyzed TCJA and IRS documentation.  Further, we interviewed TRIO, LB&I, SB/SE, IT, Chief Counsel officials,  and outside tax practitioners. We analyzed TCJA’s statutory language to  identify instances where the law included compliance safeguards, such as  anti-abuse provisions or information reporting requirements. We reviewed  IRS documentation (e.g., SB/SE compliance plans) and interviewed IRS  officials to understand IRS’s views on the opportunities, challenges, and  risks to administering and ensuring compliance with the new law. We also  interviewed and subsequently analyzed statements from seven randomly  selected tax practitioners who had submitted public comments on IRS’s  proposed regulations for the qualified business income (QBI) deduction,  opportunity zones, and the repatriation tax (see below for discussion of  provisions we further analyzed) to identify outside perspectives on  challenges for IRS administration and enforcement.

We downloaded the public comments on these proposed regulations on  April 9, 2019. For the QBI deduction, the open comment period was from  August 16, 2018, to October 1, 2018, and as of the time we downloaded  comments, there were 340 comments. For the repatriation tax, the open  comment period was from August 9, 2019, to October 9, 2019, and as of  the time we downloaded comments, there were 188 comments. For  opportunity zones, the open comment period was from October 29, 2018,  to February 8, 2019, and as of the time we downloaded comments, there  were 185 comments.

We also interviewed tax practitioners from two of the four “Big Four” tax  firms and one outside tax practitioner to which we were referred to  describe some outside opinions’ on challenges for IRS administration and  enforcement. The views expressed in these interviews are not  necessarily representative of those of other tax practitioners, or tax  practitioners as a whole, and the views of the tax practitioners we  interviewed are being used as illustrative examples throughout our report.  We examined these challenges and risks and subsequently followed up  with IRS to examine the extent to which IRS was aware of them and  planning mitigating actions to address them. We used IRS’s strategic plan  and to Standards for Internal Control in the Federal Government as  criteria for identifying any gaps between mitigation efforts and overall  agency-wide goals and priorities.

As part of our work, we further analyzed three provisions—the QBI  deduction, opportunity zones, and the repatriation tax—to gain specific  insights into the decision-making process for prioritizing and developing  guidance and regulations and factors that may affect IRS’ ability to  effectively administer these provisions. We selected these three  provisions for closer examination based on a number of factors, including  (1) IRS designating them higher priority for implementation and  identification, and (2) IRS, the National Taxpayer Advocate, and other  knowledgeable stakeholders identifying them as especially challenging or  complex to implement, administer, or enforce. Further, these three  selections ensured we were able to examine at least one provision  impacting domestic taxpayers managed by SB/SE division and at least  one provision impacting foreign, or multinational, taxpayers managed by  LB&I.

We conducted this performance audit from August 2018 to February 2020  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Implementation Status of Tax Cuts and Jobs Act of 2017 (TCJA) Business and International Provisions

Appendix III: Office of Management and Budget Review of Tax Cuts and Jobs Act of 2017

We found that, as of September 30, 2019, on average, the Office of  Management and Budget’s (OMB) Office of Information and Regulatory  Affairs (OIRA) completed its review of 25 Tax Cuts and Jobs Act of 2017  (TCJA) regulations in about 38 calendar days, as shown in tables 5 and  6. While according to the Memorandum of Agreement between OMB and  the Department of Treasury, OIRA has 45 calendar days to review tax  regulations, OIRA agreed to consider an expedited review of 10 business  days for TCJA regulations. As of September 30, 2019, OIRA agreed to  review three regulations in an expedited fashion and OIRA completed two  of these reviews in 10 business days and the third in 12 business days.

Appendix IV: Comments from the Internal Revenue Service

Appendix V: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Brian James (Assistant Director),  Dawn Bidne (Analyst-in-Charge), Michael Bechetti, Justin Bolivar, Tara  Carter, Jacqueline Chapin, Nina Crocker, Robert Gebhart, Thomas  Gilbert, Travis Hill, Naomi Joswiak, Mark Kehoe, Shelbe Klebs, Daniel  Mahoney, Regina Morrison, Benjamin Moser, Sabine Paul, Bradley  Roach, Erin Saunders-Rath, Jerome Sandau, Andrew J. Stephens,  Rachel Stoiko, Jennifer Stratton, Peter Verchinski, and Sarah Wilson  made key contributions to this report.

2019 Tax Filing: IRS Successfully Implemented Tax Law Changes but  Needs to Improve Service for Taxpayers with Limited-English Proficiency.  GAO-20-55. Washington, D.C.: January 15, 2020.

Tax Gap: Multiple Strategies Are Needed to Reduce Noncompliance,  GAO-19-558T. Washington, D.C.: May 9, 2019.

Internal Revenue Service: Strategic Human Capital Management is  Needed to Address Serious Risks to IRS’s Mission. GAO-19-176.  Washington, D.C.: March 26, 2019.  2018 Tax Filing: IRS Managed Processing Challenges and Enhanced Its  Management of Tax Law Changes. GAO-18-471. Washington, D.C.:  September 10, 2018.

Federal Regulations: Key Considerations for Agency Design and  Enforcement Decisions. GAO-18-22. Washington, D.C.: October 19,  2017.

Regulatory Guidance Processes: Treasury and OMB Need to Reevaluate  Long-standing Exemptions of Tax Regulations and Guidance.  GAO-16-720. Washington, D.C.: September 6, 2016.

Federal Rulemaking: Agencies Included Key Elements of Cost-Benefit  Analysis, but Explanations of Regulations’ Significance Could Be More  Transparent . GAO-14-714.  Washington, D.C.: September 11, 2014.

According to IRS, the Tax Cuts and Jobs Act of 2017 was the most sweeping tax law change in over 3 decades—with 86 provisions that modified, added to, or repealed business and international taxes.

IRS prioritized and implemented key provisions of the act and provided taxpayer guidance.

But there are challenges to fully implementing the act. For example, tax return data related to some of the new provisions isn’t in a readily usable format. As a result, IRS may not be able to promptly identify and alert taxpayers who aren’t in compliance. We recommended determining which data would be most cost effective to transcribe, and then doing so.