Today, the IRS released a Strategic Operating Plan (SOP) outlining how it intends to use the nearly $80 billion in additional funding received as part of the Inflation Reduction Act of 2022 (IRA) to improve the taxpayer experience, modernize its information technology (IT) systems, and strengthen tax compliance programs in a fair and equitable manner.
This is a 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.
However, of the nearly $80 billion in supplemental IRA funding, only $3.2 billion was allocated for Taxpayer Services and $4.8 billion was allocated for the IRS Business Systems Modernization (BSM) projects. Combined, that’s just ten percent of the total. 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.
As discussed in the Estimated Allocation of Funds section of the SOP, the additional resources the IRS has deployed to meet current taxpayer service needs will deplete the entire $3.2 billion IRA allocation for Taxpayer Services in less than four years if additional annual appropriations or supplemental funding is not provided. The SOP also expresses concern about the adequacy of BSM funding to modernize the agency’s antiquated IT systems.
In my opinion, the most efficient way to improve compliance is by encouraging and helping taxpayers to do the right thing on the front end. That is much cheaper and more effective than trying to audit our way out of the tax gap one taxpayer at a time on the back end. The success of IT is instrumental in accomplishing the SOP’s objectives of improving compliance. Allocating more funds to service and IT is key to taxpayers and tax administration.
Even before the COVID-19 pandemic began, taxpayer service was unacceptably poor. Since the onset of the pandemic taxpayer service has fallen through the floor and the IRS has not been able to provide the service taxpayers deserve. Taxpayers and practitioners have struggled to get basic service and help understanding the tax laws and IRS procedures. This is not sustainable. As more Americans interact with the IRS each year than with any other federal agency the government has a moral and practical obligation to make those interactions as productive, fair, and painless as possible.
The vision of the SOP contemplates a significantly different experience for individuals, businesses, practitioners, and industry by providing the ability to obtain the information and help they need, when they need it, and in a variety of ways.
Although I share the long-term vision of the SOP, I want to caution that the IRS should not lose sight of its core mission and its immediate challenge of reducing the large backlog of amended tax returns and taxpayer correspondence. The IRS’s customer service representatives (CSRs) alternate between answering taxpayer telephone calls and processing paper. As the IRS has been assigning more CSRs to answer the phones this year, the paper backlog has been growing. Although the SOP offers the promise of many positive changes in the coming years, I urge the IRS to put appropriate focus on getting its inventories under control now and not lose sight of its core mission.
Throughout the year, my office participates on inter-agency teams and makes many recommendations to fix taxpayer problems within the IRS. I also make recommendations in my annual reports to Congress. Often, the IRS responds to our recommendations by saying, in effect, “Good idea in theory, but we barely have enough funds to keep our 1960s COBOL-based technology systems operating. We just don’t have the resources to do what you’re suggesting.”
See my annual reports to Congress for a discussion of serious problems impacting taxpayers and practitioners over the past three years and recommendations to improve service. With the long-term funding the IRS has received and prudent management, change is possible. There is light at the end of the tunnel.
Several of TAS’s senior leaders played leadership roles in developing the plan and beginning the process of transforming the agency. Many sections of the plan released today reflect recommendations that TAS has been making for years, as well as recommendations included in the Taxpayer First Act report to Congress, the Taxpayer Experience Office’s roadmap, and outside stakeholder recommendations.
The plan is organized around 5 objectives:
Below is a select list of service recommendations and IT projects, as they appear in the SOP, that reflect prior TAS recommendations and have the potential to dramatically improve services for individuals, businesses, practitioners, and industry:
Although my primary goals as the National Taxpayer Advocate are to protect taxpayer rights and improve taxpayer service, we need to acknowledge that enforcement is also central to the IRS’s tax collection mission. It is necessary both to collect the taxes essential to fund the government and to ensure equity, so that all taxpayers are paying their fair share. The SOP contains initiatives to improve tax compliance, particularly among high-income individual taxpayers, large businesses, and pass-through entities. As enforcement plans continue to develop, the IRS needs to improve and reimagine its examination process for correspondence audits, particularly for low-income taxpayers, to reduce burdens and eliminate unnecessary challenges in a more proactive and responsive manner.
The summary above reflects a small number of the planned initiatives. The report runs almost 150 pages and contains a lot of information. By design, the report is high level, with specifics left to be fleshed out. Some initiatives are contingent on attracting, hiring, training, and retaining a diverse workforce of the future to accomplish the vision of the SOP.
As always, the devil is in the details, and the proof is in the pudding. Developing a plan and successfully implementing it are two different things. But, for the first time in my 40 years as a tax professional, the tax administration stars seem to be aligning. Congress has provided the IRS with significant long-term funding to improve taxpayer service, modernize IT systems and enhance enforcement, the IRS has developed an ambitious, albeit general plan to transform tax administration, and a new Commissioner with significant management experience has just taken office with a mandate to implement the plan and transform the taxpayer experience.
With continued support and oversight by Congress, the Government Accountability Office, the Treasury Inspector General for Tax Administration, and my office, 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. And that any additional resources the IRS expends for enforcement will be applied in a fair and equitable manner benefiting all taxpayers.
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.