The initial $80 billion funding boost to the IRS, passed as part of the Inflation Reduction Act of 2022 (IRA), will move much of the U.S.’s vast tax system online and digitize much of the IRS’s internal operations.
The latest update to the IRS’ Increased Funding Plan indicates that while the tax system remains as complicated as ever, all of that complexity is increasingly being moved into a digital format.
The IRS announced Wednesday that a series of new tax forms will be made available online, including employer returns filed on business Forms 941 through 943. Additional forms, including business identity theft and fraud affidavits, spousal questionnaires and sponsorship agreements, will also be available on smartphones.
The IRS said that like many commercial tax preparation services, IRS employees will be able to access return information electronically while speaking with taxpayers over the phone to help answer their questions.
The agency also now offers a service that allows tax preparers to set up online payment plans on behalf of delinquent taxpayers through individual online accounts.
Business tax accounts will be consolidated, allowing taxpayers to check outstanding tax balances, download documents and make payments on the same platform instead of different portals.
The IRS infrastructure is being updated to accommodate the increased digitalization, with some IRS offices doubling their network bandwidth to accommodate more online processing, and the bandwidth expansion is expected to be completed before the start of the next filing season, the IRS said.
On the operational side, the IRS is updating its scanning equipment and human resources IT systems, which the agency said will help with talent acquisition and workforce planning functions as it hires tens of thousands of new auditors to ramp up enforcement.
The IRS expects to hire 4,088 additional auditors by fiscal year 2024 and 33,000 by fiscal year 2029. This puts auditor hiring well below the 87,000 additional auditors in the previous staffing projection for the IRA funding boost.
The IRS is expanding its in-person capabilities as well as electronic ones. Increasing staffing at temporary taxpayer assistance centers, increasing call center efficiency targets, and paper reduction goals are all on the IRS to-do list.
Community outreach visits for taxpayers who don’t live within a few hours’ drive of an IRS office will be available this summer in 10 states, including Puerto Rico.
Republicans have opposed any budget increases for the IRS and have so far scaled back an initial $80 billion increase to about $60 billion through cancellations of regular spending. The money is scheduled to run through 2032.
Most of the money would be used for additional audits, particularly of high-income individuals and corporations, who pay a significant portion of the taxes that should be paid to the government each year but go uncollected.
But because of the challenges of hiring highly skilled auditors, only 3 percent of the IRA enforcement budget has actually been spent, more than half of the original $80 in additional funding.Last year, the IRS hired just 495 additional enforcement personnel.
$691 million has been spent on enforcement costs, while $1.4 billion, or 43.2 percent of the taxpayer service budget, has been disbursed to date.
While the IRS’s internal measurements of service levels have improved, National Taxpayer Advocates within the IRS say 75% of calls received during the 2024 filing season are still going unanswered or being routed to an automated system.
One of the most widely publicized elements of the IRS’s additional funding has been the Direct File Pilot Program, a publicly administered version of many private tax preparation software but with a more limited applicability to different tax situations.
The program has drawn the ire of Republicans, who voted to defund it as soon as they took back the House in 2022.
This week, Reps. Adrienne Smith (R-Neb.) and Chuck Edwards (R-N.C.), who are on the Ways and Means Committee, The bill was submitted Eliminate Direct File and “prohibit the IRS from continuing it or developing a successor system.”
“This bill would direct the IRS to discontinue a program that lacks both measurable results and legal authority,” Smith said in a statement Tuesday.
The recent Supreme Court decision in Loper Bright Enterprises v. Raimondo, which abolished longstanding precedent for federal agencies to exercise their own interpretive discretion over the law, may change the legal environment underlying the regulatory initiatives currently driving reform at the IRS.
But IRS Commissioner Danny Wuerfel, who has long stressed the need for increased IRS resources, did not seem fazed by the ruling during a conference call with reporters on Wednesday.
“We have momentum that’s not dependent on any upcoming regulatory action or regulatory challenges, so right now I’m pretty optimistic that the only obstacle we have in providing a better service to taxpayers is funding,” he said.
Wurfel said the Treasury Department’s Office of Tax Policy is assessing the impact of the Roper-Bright decision on agency operations.
“I know the administration and other government agencies are reviewing recent Supreme Court legislation, understanding its impact and working to ensure accountability,” Wurfel added.
