New workers have to be recruited and trained, which requires pulling experienced IRS employees out of the field temporarily, said Deputy Commissioner Sunita Lough. Then it takes several years before they are producing revenue and operating at full strength, particularly as they work complicated, contentious cases involving high-income taxpayers or partnerships.

"If we get funding -- let's say tomorrow or next year -- for a lot of revenue agents that would be fantastic, but the results take a long time, " Ms. Lough said.

The Obama administration boosted IRS funding from $10.9 billion in 2008 to $12.1 billion in 2010 and 2011. It also leaned on the tax agency to implement priorities: the 2009 stimulus law and the 2010 Affordable Care Act, along with a 2010 law aimed at curbing Americans' use of offshore accounts.

Those laws came with urgent deadlines, requiring the IRS to create systems and forms, push other work to the back burner and pull employees from other projects.

Once Republicans took control of the House of Representatives in 2011, additional money started drying up. Like other agencies, the IRS was hit in the fiscal-austerity push that culminated in the 2011 budget deal between then-President Barack Obama and congressional Republicans.

In 2013, the agency apologized for giving extra scrutiny to some conservative groups seeking nonprofit status, a controversy that cost the acting IRS commissioner his job. Republicans further tightened the IRS's purse strings. Their argument: The IRS proved itself a bad steward of federal money and didn't deserve any more.

Even after getting the $2 billion in one-time money to implement the coronavirus relief programs, the IRS's inflation-adjusted budget is down 7% since fiscal year 2010, and the enforcement budget is down 25%, according to Janet Holtzblatt, a former Congressional Budget Office executive who is now at the Urban Institute, a policy research group in Washington.

Budget cuts cascaded through the agency. Abbey Garber, a lawyer who supervised small-business cases in the Southwest before leaving in 2018, said it became harder to prepare for trials because auditors lacked time to do more than hand files to lawyers. A group of economists who analyze businesses' transactions shrank from 20 to four, Mr. Garber said. "Stuff would just end up in the queue and not be able to come out of there," he said.

Doreen Greenwald, a revenue officer in Milwaukee who is currently on leave, said the number of such employees collecting unpaid taxes in Wisconsin dropped from 100 to about 30. She estimated that it would take five or six years of hiring and training to rebuild that capacity. "The fear is that if you're not out there knocking on doors, people notice," said Ms. Greenwald, a former chapter president at the National Treasury Employees Union.

The level of service -- the share of people wanting and receiving telephone assistance who get it -- was below 50% for much of last year's filing season, according to the Government Accountability Office.

"The public is getting shortchanged," said Rep. Rosa DeLauro (D., Conn.), chairwoman of the House Appropriations Committee, who backs a substantial funding increase.

Ms. DeLauro is an architect of the expanded child tax credit, which requires the IRS to do something unusual for it -- to distribute monthly benefits payments. That means processing frequent updates of addresses and bank accounts. The IRS will draw on experience from stimulus payments and reach out to people who typically don't file tax returns to get them into the system.

Last week, Sen. Chuck Grassley (R., Iowa) said he was concerned that programs like the child-tax-credit payments push the agency away from its core tax-collection mission.

While the administration hasn't detailed its full plan for the IRS, Mr. Biden called for more enforcement during his campaign and the corporate tax proposal in his infrastructure plan emphasizes tax enforcement. His Treasury Department has hired University of Pennsylvania economist Natasha Sarin, a leading academic advocate for boosting IRS funding.

The Congressional Budget Office estimates that an additional $20 billion for enforcement would yield $60 billion more revenue, while other analysts say the deterrent effects and tougher information-reporting rules could yield up to $1 trillion over a decade.

Democrats have signaled a willingness to fund such an effort.

For now, at least, some Republicans seem willing to give the IRS more money. Rep. Steve Womack (R., Ark.), the top GOP member of the subcommittee overseeing IRS funding, said he has been impressed with Mr. Rettig.

"I don't hesitate at all to help deliver what he believes he needs to help execute his mission," Mr. Womack said. But he said he wants to make sure the public gets a return on additional investment, and he worries about the agency taking on new responsibilities outside its core areas.

"They've got a tough job anyway," he said. "Remember: It is the IRS."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

04-20-21 1045ET