Upgrading the Internal Revenue Service’s antiquated IT infrastructure will help honest taxpayers, especially those making $400,000 or less, from being audited, Department of the Treasury Secretary Janet Yellen said. Speaking September 15, 2022, at an IRS facility in New Carrollton, Md., Yellen reiterated that the $80 billion in additional funds allocated to the IRS in the recent Inflation Reduction Act (IRA) would not be used to increase audits on lower earning taxpayers.
“The enforcement resources will not be used to raise audit rates for households making under $400,000 a year,” Yellen said, according to the prepared remarks posted on the Treasury Department website. “In fact, we expect audit rates for honest taxpayers to decline, once the IRS has the right technological infrastructure in place. This means a simpler tax filing season for taxpayers who are doing everything right.”
The Treasury Department’s focus on getting high income individual taxpayers and corporations to pay their fair share of taxes has been a consistent message Sec. Yellen and other Treasury and IRS officials have been sending since the funding was approved.
“In 2019, the top one percent of Americans was estimated to owe over 1/5 of unpaid taxes – totaling around $160 billion,” Yellen said, “Data shows that less than half of all taxes from more complex sources of income are paid. Yet nearly all taxes due from wages and salaries – which are earned by ordinary Americans – are paid,” adding that “working families are shouldering a disproportionate burden of investing in our roads, schools, military, and more.”
She called that inequity unacceptable, and said that the funding from the IRA “will go toward auditing more high earners who have not paid their full bill. With it, we are estimated to raise hundreds of billions of dollars in revenue.”
Sec. Yellen also suggested that tax filing could become simpler as the agency updates its IT infrastructure. She cited a statistic that it takes an average American 13 hours to file a tax return, while in Sweden, some can simply file with a text message.
“The IRA provides the funding to transform the IRS into a 21st century agency,” she said. “While all the improvements won’t be done overnight, taxpayers can expect to feel real differences during the next filing season.”
The most immediate difference will be with those seeking assistance. Yellen said Tax Assistance Centers will be fully staffed for the next tax season, allowing for the IRS to help “at least 2.7 million Americans,” up from 900,000 Americans helped in the previous year.
Similarly, they are increasing staffing at call centers and targeting an 85% service level (meaning between 8 and 9 of every 10 calls are answered), up from the current level of 10-15% during the most recent tax filing season. It also plans to reduce wait times to less than 15 minutes from the near 30 minutes of wait time during the 2022 tax filing season.
Sec. Yellen also committed to digitize paper tax returns and move away from the current use of manual transcribing, something both tax professionals and the National Taxpayer Advocate have been calling for. “For taxpayers, this means faster processing and faster refunds,” she said. “The IRS will also build online capabilities to enable taxpayers to digitally interact with the agency. Currently, when taxpayers receive a notice from the IRS, they generally must respond via mail. During this coming filing season, millions of taxpayers will be able to receive and respond to notices online.”
NTA Offers Suggestions on How New IRS Funding Should Be Allocated
National Taxpayer Advocate Erin Collins offered suggestions on how the Internal Revenue Service should spend the $80 billion in additional funding it received from Congress. In the first of two blog posts on the subject posted September 14, 2022, Collins focused on the immediate needs of the agency.
She wrote that before the IRS moves forward on plans to improve its overall operations, “it is imperative that it fulfills its core filing season mission by eliminating the backlog of unprocessed original and amended paper-filed tax returns, pay all pending refunds, and work through its backlog of overaged correspondence.” To achieve this, she recommended:
- Hire or re-assign employees to process the backlog of paper-filed tax returns and correspondence
- Hire enough employees to answer 85% of taxpayer phone calls and institute “customer callback” technology on all toll-free lines
- Improve services for taxpayer professionals
- Continue to suspend automated collection notices until the backlog is eliminated
- Hire enough employees to fully staff Taxpayer Assistance Centers and extend walk-in capabilities
The recommendations preceded remarks made by Department of the Treasury Secretary Janet Yellen on September 15, 2022, where she also talked about a number of these recommendations as priorities for the IRS, including fully staffing Taxpayer Assistance Centers and improving call center service levels.
Longer Term Recommendations
In her second blog post on the subject, posted September 15, 2022, Collins focused more on long-term initiatives the IRS can embark on to improve the taxpayer experience. The recommendations ranged from basic, such as hiring more human resource employees and ensuring proper training for all IRS employees to updating antiquated information technology infrastructure, improving transparency, and issuing clear notices and guidance.
On the IT side, Collins recommended some of the usual suspects, including improving online functionality and access to tax records, and automating the scanning process for paper filings. She also called for implementing technology to allow taxpayers and tax professionals to upload documents for auditors, as well as improving the legibility of transcripts, and allowing all taxpayers to electronically file their tax returns.
Other technology recommendations include improving the voicebots and chatbots as well as overhauling the IRS website to make it more user friendly.
In the area of improving transparency, Collins noted that during the 2020 and 2021 filing seasons, the IRS “failed to provide weekly reports proving tax return processing timeframes so taxpayers would know what to expect when they filed their returns or submitted correspondence. This lack of proactive transparency and timely information left taxpayers confused and frustrated, reaching for the phones, searching the Internet, and looking for tax professionals to help.”
As for improving notices and guidance, Collins noted that despite improvements over the years, “some critical notices remain confusing and vague, and don’t provide taxpayers with adequate IRS contact information. In some cases, the IRS limits the number of characters and words in its notices.”
The Taxpayer Bill of Rights states that taxpayers have the right to stay informed. If the IRS knows something, “it needs to timely, accurately, and clearly say it,” Collins wrote. “Failure to do so may well lead to more complications and problems for taxpayers, requiring additional time and resources by taxpayers, tax professionals, and the IRS to resolve them.”
Finally, Collins called for an increase to the Taxpayer Advocate Service funding, noting that its “case advocacy operations are already stretched thin, and we will need to hire additional employees if the IRS ramps up its compliance activities, as that inevitably will lead to more TAS cases.”
“IRS leaders often tell us they agree with our recommendations in concept, but they lack the resources to implement them,” Collins wrote in the second blog post. “With the supplemental funding it has received, these initiatives can now be undertaken.”
Let’s see what happens.