Don't Mess With Taxes

The National Taxpayer Advocate’s latest report to Congress urges the Internal Revenue Service to continue its technology upgrades to meet coming challenges, with the top priority being enhanced taxpayer online account options. (Photo by Glenn Carstens-Peters on Unsplash)

Despite what you may have heard from the Trump administration and Department of Government Efficiency (DOGE), the Internal Revenue Service has been doing a pretty good job.

“Since the COVID-19 pandemic disruptions, the IRS has rebounded to provide much improved taxpayer service,” notes National Taxpayer Advocate Erin M. Collins in her introduction to her midyear report to Congress, Fiscal Year 2026 Objectives Report to Congress, released today (June 25).

“This year marked its third consecutive year of delivering a generally successful filing season, and by some measures, it was the smoothest yet. Most taxpayers filed their returns and paid their taxes or received their refunds without any delays or intervention from the IRS,” added Collins.

But there could be hurdles ahead.

Threats to IRS operations: With the IRS workforce reduced by 26 percent and significant tax law changes on the horizon, Collins warns there are risks to next year’s filing season.

Most of the impending IRS speed bumps, if not total roadblocks, are coming from inside the government.

Both the White House and DOGE have advocated, and implemented earlier this year, staff reductions. Those personnel cuts are continuing.

The Republican-led Congress also has targeted IRS funds, clawing back supplemental IRS funds provided under the Biden administration.

Finally, new IRS Commissioner Billy Long has no background in tax, and as a U.S. Representative supported legislation to abolish the agency.

Collins advice to the IRS is that it begin to take steps now to prepare for the coming challenges.

IRS urged to focus on tech improvements: One of the key areas of focus cited by Collins’ report is the continued modernization of IRS technology systems.

The IRS has made notable strides during the last couple of years in developing and deploying technology systems that automate key IRS functions in a way that improves taxpayer service and compliance and reduces the need for a large workforce, notes the report. The agency should prioritize three taxpayer-focused information technology (IT) projects, where the IRS has made recent progress.

This focus on a manageable number of projects that provide the greatest value to taxpayers, employees, and the tax system will also ensure that taxpayers are not harmed during the transition period, says Collins.

Collins’ report recommends that the IRS adopt a “digital first” approach to taxpayer service and prioritize three projects.

Create fully functional online taxpayer accounts: Enhancing IRS taxpayer accounts should be top priority, says Collins. Taxpayers and tax professionals should be able to view all relevant information and conduct all transactions with the IRS through these accounts, an option not yet available.

“The IRS should continue to prioritize providing online functionality that mirrors the robust functionality offered by banks and other financial institutions,” according to the report. “For at least two decades, most of us have been able to conduct almost all our financial activity using online accounts.”

This includes making deposits, paying bills, transferring funds, and even applying for mortgages and home equity lines of credit at banks. At brokerages, it includes buying and selling stocks and securities. Credit card owners can go online to pay balances, monitor charges, and dispute charges.

By contrast, notes the report, the functionality of IRS online accounts is limited.

Taxpayers generally cannot file tax returns, view most notices, or respond to notices through their online accounts. Until recently, they could not make payments. As a result, only about 10 percent of taxpayers have taken the time to establish online accounts.

“The IRS must do more,” Collins wrote. “I believe the IRS’s top technology priority should be to allow taxpayers to conduct all transactions with the IRS from the ‘one-stop shop’ of an online account, just as they can with other financial institutions.”

Digitize current IRS paper operations: The IRS’ next technological step should be digitizing the agency’s processing of paper-filed tax returns, correspondence, and other documents.

The IRS estimates it will receive about 43 million paper tax returns and 19 million paper information returns in 2025, as well as millions of responses to the roughly 170 million paper notices it sends to individual taxpayers each year.

Currently, IRS employees manually transcribe the data on paper forms into the agency’s systems.

And while taxpayers can upload their responses to IRS notices through a digital Document Upload Tool, the IRS does not have a way to process those responses using automation. So, it generally must print taxpayer responses and route them to IRS employees for processing as if they had been submitted on paper.

“True modernization would provide an IT solution from the time the paper arrives at the IRS through the backend processing of the return or correspondence.” Collins wrote.

Integrate disparate case management systems: The third top IRS IT project should be to make it possible for the agency to get answers about taxpayer data from the current 60 distinct case management systems it uses to store taxpayer data.

These separate systems generally cannot communicate with each other. As a result, a taxpayer who calls the IRS to discuss an account issue may find the customer service representative (CSR) who answers lacks access to the relevant account information or must open multiple case management systems on different screens and toggle among them to answer questions, notes the report.

“[A] call to a CSR can take much longer than it should,” the report says. “The CSR may have to put the taxpayer on hold multiple times to launch different systems and ultimately may still not be able to access the system relevant to the taxpayer’s issue, requiring a transfer or a call to a different IRS function. This fragmentation contributes to poor customer service and taxpayer frustration.”

“Given that the IRS handles approximately 100 million telephone calls each year, giving CSRs faster and more complete access to taxpayer data would go a long way toward improving the timeliness and effectiveness of telephone service,” the report says.

The IRS has addressed this service limitation under the Taxpayer 360 initiative. It created an integrated case management system that consolidates all relevant information a CSR may need to help taxpayers in a single database.

Collins’ report recommends the IRS continue to prioritize this initiative.

You can read the full report at the National Taxpayer Advocate website. Also, I'll be blogging about more of Collins' findings in future posts.

You also might find these items of interest:

• IRS receives 1 millionth uploaded tax document
• IRS’ latest moves enable more digital taxpayer interactions
• IRS Commissioner touts the tax agency's generational digital transformation

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