Since the start of the pandemic, an already stressed IRS has continued to face challenges providing robust customer service, processing returns, reviewing amended returns, and managing non-compliance notices. In fact, at one point the agency completely stopped mailing automated notices because of the confusion and concern created amongst recipients. The confluence of staffing issues, government ordered shutdowns, pandemic relief payments, and outdated technology pushed the agency to the brink. Without adding funding and resources it appeared the struggles would continue.
When the Inflation Reduction Act was passed it included several spending provisions to help curb inflation and propel investment in clean energy. It also included an $80B allocation of funding to the IRS over a 10-year period to help address these persistent issues. On April 5th, the IRS published the Inflation Reduction Act Strategic Operating Plan which highlights the agency’s strategic objectives, tactics, and spending priorities. To help clients, prospects, and others, Whipplewood CPAs has provided a summary of the key details below.
IRS Strategic Priorities
In the mission to become a “world-class customer service operation,” the IRS is hoping this new budget rollout will bring significant progress over the next few fiscal years. The organization wants to focus on digital access and improved tools that can help taxpayers sort through the complexity of tax laws. One step toward becoming a more user-friendly operation will be achieved by maintaining a robust customer service team, equipping them with the appropriate resources and training to best assist taxpayers. To accomplish this the agency has set the following goals, including:
- Connecting taxpayers with the incentives they are eligible to receive.
- Improving the services that allow them to meet their tax obligations.
- Enhancing effective operations through data, analytics, and technology.
- Expanding enforcement efforts to focus on those who have “high-dollar noncompliance” and complex taxes to file.
- Working to resolve taxpayer issues quickly.
- Delivering better results for taxpayers by focusing on recruitment and retention of a skilled, diverse workforce.
First Phase of the Plan
While the recent publication doesn’t lay out the complete plan for the $80 billion budget, it does mention the IRS will regularly report and monitor progress for the first few years to better plan for the rest of the allocation. For fiscal years 2022, 2023, and 2024, $3.5 billion will go to operations, $1.78 billion will go to enforcement, and $1.7 billion each will go to taxpayer services and business system modernization. The focus is to significantly improve the customer experience through service and technological improvements.
Proposed Operational Changes
Some of the operational changes proposed in the plan include:
- Giving tax professionals the ability to see status information of clients. Through the Tax Pro Account platform, taxpayers can give tax professionals the authority to track status information online.
- Securing online account access for taxpayers where they can make changes, communicate with the IRS, view their profile & account information, and manage payment, refund, and communication preferences.
- Providing a customer callback option for most calls to toll-free IRS assistance lines (75%), with plans to increase to 95% by the end of July 2023.
- Helping taxpayers identify filing mistakes before submitting their tax returns to prevent delays in refunds.
- Expanding the Office of Chief Counsel role, as well as the Office of Tax Policy within the Department of the Treasury, in a way that tax questions are answered more proactively, through legal guidance and rulings in formal and informal ways.
- Improving digitization by starting with digital copies of notices sent to online accounts so they can be accessed easily by taxpayers and authorized third parties.
Increased Enforcement Efforts
High-income and high-wealth individuals, corporations, and partnerships that are not paying what they owe will receive increased enforcement funded by the Inflation Reduction Act. There is also a plan to keep audit rates consistent for households or small businesses making under $400,000 per year. With this Act, the IRS has stated they are shifting their focus more to taxpayers who are trying to avoid taxes, not on those who have made honest efforts to pay their taxes accurately.
One of the important chances brought forth by the IRA is an increased source of funding for the IRS, which has declined steadily in the past decade. Current staffing is about 20% less than it was in 2010, despite the U.S. population seeing a 7% increase and tax law becoming more complex. If funding maintains at the FY 2022 levels, the IRS has stated the plan will be carried out as intended, but if there is a decrease in discretionary funds, the budget from the IRA will have to be used for general operations.
Staffing has taken a particularly hard hit in enforcement. Auditors who worked on complex cases dropped from 5,000 in 2010 to just 2,600. Subsequently, audit rates dropped from 10.5% in 2011 to 1.7% in 2019.
In the coming weeks, the IRS will share spending plans with the appropriate Congressional committees, which go beyond the outlined spending plan that runs through FY 2024. Prior to major staffing initiatives and technology spending, the agency will share information in the interest of transparency.
It is expected the customer service and processing issues will be significantly reduced. Concurrently, it appears enforcement efforts will also be intensified which is expected to impact Denver taxpayers. For this reason, it is important to consult with a qualified tax advisor to determine how you may be impacted. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Whipplewood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.