Don't Mess With Taxes

The Treasury Department and Internal Revenue Service today released an extensive plan on how the tax agency will spend the nearly $80 billion in added funds it received in the Inflation Reduction Act (IRAct).

New IRS Commissioner Daniel Werfel, in the introduction to the 150-page Strategic Operating Plan, said the plan is structured to achieve the following five objectives —

1. Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.
2. Quickly resolve taxpayer issues when they arise.
3. Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.
4. Deliver cutting-edge technology, data, and analytics to operate more effectively.
5. Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.

Overall, the plan contains 42 initiatives with more than 190 key projects and 200 milestones, with timeframes based on the fiscal years in which they are to be met.

Treasury's announcement of the plan, which originally was due Feb. 17, also included links to seven fact sheets with more on the agency's efforts to use the added IRAct money to —

• provide improved customer service;
• modernize IRS technology;
• enhance small business services;
• improve services to workers and families;
• implement the Inflation Reduction Act's clean energy provisions;
• ensure fairness in tax administration; and
• provide services to all communities, including rural and older taxpayers.

A focus on taxpayer services: One of the plan's ultimate goals, wrote Werfel, is to make the agency into a "world class customer service operation where taxpayers can engage with the IRS in a fully digital manner if they choose, where helpful tools for taxpayers to navigate the complexity of our tax laws are deployed and then refreshed and updated regularly based on taxpayer feedback, and where our customer service workforce is maintained at the right size and with the right resources and training to always be ready to meet the taxpayer demand for assistance."

That alone is a laudable, and huge, goal. It's also one that likely will take more time (and money) than the IRS was allocated in last year's new law.

The IRAct spread the new funding across all of the IRS' program areas, but left it to the agency to determine how it would use the money. The IRS says the added $79.4 billion will be parceled out to achieve the plan's five objectives, as well as the act's clean energy mandates, as shown in the table below.

Future funding fights expected: The report notes that the IRS "may need to adjust timelines and/or the breadth and depth of delivery for specific transformational initiatives — most notably in the areas of taxpayer service and technology, which … will require additional discretionary appropriations beyond what the [Inflation Reduction Act] provided — as we learn more, but we will remain committed to the vision and outcomes articulated in this plan."

The bottom line, as has long been the case for the IRS when it comes to getting money from Capitol Hill, is that, per the plan, "based on what we know today, we believe that we will need an ongoing investment on top of" the IRAct money.

But Werfel believes the Strategic Operating Plan itself will help here.

"For years, the agency has not had the resources to provide the service people deserve. Across all of our operations we've seen the impact. We've lost employees and seen our resources stretched thin with new mandates and an increasingly complex economy," Werfel said in his agency's separate plan announcement. "The IRS looks forward to demonstrating how the actions under this plan will translate into real improvements for taxpayers. Technology as well as in-person assistance will be cornerstones of this effort."

Not all are convinced: As expected, reaction to the report is mixed.

National Taxpayer Advocate Erin M. Collins, noted in a blog post that the IRS plan "is game changer to transform how the U.S. government administers the tax laws in a more helpful and efficient manner while focusing on providing the service taxpayers deserve."

"I am hopeful and optimistic that five years from now, tax administration will be transformed and taxpayers, for the first time in memory, will receive the service they deserve," she added.

However, Collins was not thrilled with the allocations. She noted that of the nearly $80 billion in supplemental funding, only $3.2 billion is slated for Taxpayer Services and just $4.8 billion for IRS Business Systems Modernization (BSM) projects.

"Combined, that's just ten percent of the total," she wrote. "By contrast, 90 percent was allocated for Enforcement ($45.6 billion) and Operations Support ($25.3 billion). The additional long-term funding provided by the IRA, while appreciated and welcomed, is disproportionately allocated for enforcement activities, and I believe Congress should reallocate IRS funding to achieve a better balance with taxpayer service needs and IT modernization."

Continued enforcement concerns: The enforcement amount has been the focus of Republican lawmakers, many of whom claimed the IRS would use the dollars to aggressively audit lower- and middle-income taxpayers.

The Treasury announcement reiterated that the plan complies with Secretary Janet Yellen's directive that the new resources not be used to raise audit rates for small businesses and households making less than $400,000 a year, relative to historical levels. The operating plan specifically addressed this concern:

"We will focus [Inflation Reduction Act] enforcement resources on hiring the accountants, attorneys, and data scientists needed to pursue high-income and high-wealth individuals, complex partnerships, and large corporations that are not paying the taxes they owe. All efforts will comply with your directive not to use IRA resources to raise audit rates on small businesses and households making under $400,000 per year, relative to historic levels. Our efforts outlined in the Plan to provide better service to taxpayers, help them file accurately and resolve issues at filing, coupled with technology and data advances, will allow us to focus enforcement on taxpayers trying to avoid taxes, rather than taxpayers trying to pay what they owe."

Still, some remain dubious.

"The Plan unfortunately lacks key details that are critical to taxpayers and their advocates, such as specific quantitative goals for improved service, how the IRS will better measure and assess the tax gap, and how the IRS will square its expanded enforcement objectives with taxpayer rights and due process," said National Taxpayers Union Foundation President Pete Sepp in a statement about the IRS plan.

Acronym elaboration: A quick note about my Inflation Reduction Act acronym IRAct. You've probably seen and will continue to see this law referred to as the IRA on second reference in other publications and government statements. But since IRA automatically conjures up in my tax mind thoughts of retirement savings, not inflation reduction, I'm going with my own IRAct abbreviation.

You also might find these items of interest:

• Daniel Werfel starts work as IRS' 50th commissioner
• IRS needs to improve its Tax Gap estimation methodology
• Money, modernization and messaging are IRSAC report focus

Advertisements