Last month, Congress passed the Inflation Reduction Act (IRA22), which provides the IRS with supplemental funding of nearly $80 billion over the next ten years. More than half the funding has been earmarked for tax law enforcement, and that has attracted a good deal of public attention. But the legislation also provides about $3.2 billion for taxpayer services, including pre-filing assistance and education, filing and account services, and taxpayer advocacy services; $4.8 billion to modernize the IRS’s information technology (IT) systems, including development of callback technology and other technology to provide a more personalized customer service; and $25.3 billion to support its taxpayer service and enforcement operations, including rent payments, facilities services, printing, postage, physical security, research and statistics of income, telecommunications, and information technology operations and maintenance.
This additional funding should be a game changer for taxpayers and practitioners alike. If spent wisely, the funding will give IRS management the resources it needs to bring U.S. tax administration into the 21st century by enabling it to hire and train the workforce of the future, replace its antiquated IT systems, and generally revamp the taxpayer experience based on principles of fair and equitable tax administration. I am excited to be part of this historic effort, and I am optimistic that taxpayer service will significantly improve in the near future.
As most readers of this blog know, the National Taxpayer Advocate is required by law to submit two annual reports to Congress that, among other things, make administrative recommendations to mitigate taxpayer problems. Frequently, IRS leaders tell us they agree with our recommendations in concept, but they lack the resources to implement them. With the supplemental funding it has received, now is the time to act on my recommendations.
In an August 17 memorandum, the Secretary of the Treasury directed the Commissioner to produce an operational plan within six months that details how the additional IRA22 funding will be spent. This is the first of two blogs that recommend specific initiatives I believe the IRS should incorporate into its plan. In today’s post, I will discuss the most time-sensitive priorities, including working through the paper processing backlog and improving service on its toll-free telephone lines. In Part Two, which will be published tomorrow, I will discuss other important initiatives the IRS should undertake to enhance the taxpayer experience by improving taxpayer service, protecting taxpayer rights, modernizing its IT systems, and creating a fair and equitable tax administration system that promotes voluntary tax compliance.
Since the start of the COVID-19 pandemic, many Americans believe “taxpayer service” at the IRS has been a misnomer. For the millions of Americans – both individuals and businesses – who have had to wait six to ten months or even longer to receive their refunds, and for the nine out of ten taxpayers calling the IRS who have not been able to reach a live assistor, taxpayer service seems more like a distant aspiration than reality. These customer service failings have been well documented.
But it is equally important to remember that taxpayer service was poor even before the pandemic began. For example, taxpayers who called the IRS often could not reach a live assistor or were subject to “courtesy disconnects.” Customer callback was not offered as an option for most callers. Many taxpayers who wanted to e-file their tax returns were unable to do so because some of the IRS’s own tax forms are incompatible with its e-filing technology. For the limited number of taxpayers with IRS online accounts, functionality was limited. With the additional IRA22 funding, I believe these shortcomings can be addressed.
Before the IRS moves forward in improving its overall operations, however, it is imperative that it fulfill 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 help it get current as quickly as possible, I reiterate my prior recommendations to take the following steps:
1. Hire or re-assign employees to process the backlog of paper-filed tax returns and correspondence. At some point, the IRS will get current with return processing, but until then, it should remain its top priority. For taxpayers, expeditious processing is imperative. Millions of individual and business taxpayers are continuing to wait unacceptably long periods of time to receive their refunds or responses to inquiries. In her August 17 memorandum, the Secretary of the Treasury said that the IRS generally could not spend IRA22 funding until it submitted its six-month plan but that she would “approve the near-term use of funds to improve services for next filing season.”
The delays taxpayers have experienced in receiving their refunds qualifies as a five-alarm fire emergency that will affect the next filing season unless dealt with immediately. The IRS should use whatever funding it needs to speed taxpayer refunds, process returns, respond to correspondence, and ensure there are no remaining backlog items, in any category, by the time the next filing season begins.
2. Hire enough employees to answer 85 percent of taxpayer telephone calls, and institute “customer callback” technology on all toll-free phone lines. Taxpayers who call the IRS are doing what the government asks of them – trying to comply with their tax filing or payment obligations. Better staffing and customer callback will ensure taxpayers can reach the IRS and can do so without having to wait on hold interminably.
3. Improve service for tax professionals, who often call with complex issues or cases and cannot obtain timely and accurate assistance. When tax professionals wait on hold or receive inaccurate information that needs to be corrected, they often pass on the costs to the taxpayers they work for. Sometimes, they absorb the costs, which harms their businesses. Poor practitioner service may result in inaccurate filing and inconsistent application of the tax laws. Taxpayers are harmed when professionals do not get clear, consistent, and accurate information from the IRS, resulting in increased costs for both taxpayers and tax professionals and creating additional work for IRS employees.
4. Continue to suspend automated collection notices until the backlog is eliminated. On February 5, 2022, the IRS began suspending the automatic mailing of more than a dozen letters, including automated collection notices normally issued when a taxpayer owes federal tax and automated notices asking a taxpayer to file a tax return when the IRS has no record of the filing of the return. This notice suspension was good news for taxpayers. It eliminated some confusion and frustration for those experiencing processing delays and freed IRS resources devoted to reducing the correspondence backlog. The IRS should continue to suspend notices until both the processing and the overaged correspondence backlogs are eliminated.
5. Hire enough employees to fully staff Taxpayer Assistance Centers (TACs) and extend walk-in capabilities. The IRS maintains 360 TACs around the country where taxpayers can obtain in-person assistance. Due to funding constraints, however, the IRS has reduced services at the TACs considerably over the past decade. The TACs used to be referred to as “walk-in” sites, until the IRS changed its procedures and required taxpayers to make advance appointments to be served. Forty TACs are currently unstaffed. We continue to receive complaints that obtaining in-person service is difficult or protracted. Although broader use of automation should continue to reduce the demand for in-person assistance, the IRS should do a better job of providing in-person service for those taxpayers who seek it, including by offering more appointments, accepting walk-in taxpayers, and expanding hours of operation during the filing season.
As discussed above, the IRS’s #1 short-term priority should be to eliminate its backlog of unprocessed paper-filed tax returns from the filing season and its taxpayer correspondence backlog. In Part Two of this blog, I will recommend longer term initiatives the IRS should prioritize with its supplemental funding to improve the taxpayer experience through modernizing its IT systems, increasing its hiring, and improving taxpayer services.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.