For the IRS Strategic Operating Plan, Implementation is Key

The growing complexity of the tax code, coupled with persistent understaffing and declining budgets exacerbated during the pandemic, has hindered the IRS’s ability to effectively educate and assist taxpayers throughout the filing process. Low rates of calls answered by customer service representatives, long average wait times, and poorly trained representatives have left taxpayers shortchanged when engaging with the IRS on questions or concerns regarding tax filing. The following provisions of the IRS plan, which align with BPC recommendations, would address these concerns.

• Recruit, train, and retain a skilled IRS workforce to improve taxpayer services: The IRS will upgrade hiring practices to attract a workforce with the needed diverse skillsets to operate modernized IT systems. Additionally, efforts to streamline employee training nationwide should improve knowledge of tax administration and enable employees to better respond to taxpayer questions and concerns. As the agency transitions to electronic processing for all forms, IRS employees can also reduce time spent manually processing information to instead spend more time directly assisting taxpayers and tax professionals to help them navigate the complex filing process.
• Modernize outdated IT systems and online tax filing tools: The IRS will digitalize all tax forms so filing can be completed online. Additionally, the IRS will create accessible, easy-to-use online self-service accounts that allow individuals, businesses, and tax professionals to see all relevant data and claims, securely store information, and directly interact with IRS representatives. Online tools will also be translated into the top eight languages taxpayers use.
• Strengthen taxpayer data protections: With the introduction of modernized systems, the IRS will secure sensitive taxpayer information by implementing “zero trust” authentication systems that require multi-step verification before accessing data. The IRS will also continue to implement cybersecurity best practices to combat external cyberthreats to taxpayer data.

Benefits administered through the tax code offer significant financial support to Americans. Since many individuals already file a tax return, the marginal costs to administer these benefits is relatively low, resulting in higher take-up rates for the EITC than other benefit programs, such as Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF). Still, complex eligibility requirements, particularly for the EITC, often require additional assistance to ensure claiming accuracy. The following provisions of the IRS plan, which align with BPC recommendations, would address these concerns.

• Expand educational outreach to increase awareness and take-up of available credits and deductions: In coordination with federal, state, and local government agencies and private-sector and community partners, the IRS will work to improve awareness and understanding of available credits and deductions using varied communication methods like social media, radio, TV, and text alerts.
• Expand availability of in-person, community-based resources: TACs, Volunteer Income Tax Assistance sites, and Low-Income Taxpayer Clinics will offer taxpayers more support during filing season to ensure accurate claiming from the start.
• Notify eligible taxpayers when they fail to claim credits or deductions: Updated systems will check e-filed returns and notify taxpayers at the point of filing if credits or deductions were missed or incorrectly claimed.

According to the latest October 2022 estimates from the IRS, the tax gap averaged $496 billion annually in tax years 2014-2016. Staffing and budget shortages have further decreased enforcement capacity within the IRS, impacting the agency’s ability to close the tax gap. As a result, the IRS reduced audits on higher earners and complex filers, likely resulting in greater underpayments. The following provisions of the IRS plan, which align with BPC recommendations, would address these concerns.

• Enhance the notification system to correct simple errors: The improved systems will notify taxpayers when errors occur during filing through multiple outreach methods to increase likelihood of response and rectification of errors before triggering the formal audit process. Notifications will clearly identify errors in plain language and provide information on how to resolve the issue, including an option to respond electronically.
• Increase system capacity and expertise to address high-dollar noncompliance and issues for complex filers: Implementing a centralized, integrated system for risk-assessment and increased employee capacity will allow the IRS to better address complex noncompliance cases.
• Promote fairness in tax compliance: The increased capacity will enable the IRS to equitably assess compliance across all tax groups, while using data to identify areas of potential systemic bias and disparities across demographic groups.

While the IRS’s Strategic Operating Plan offers a clear and encouraging operating vision for a more modernized agency, implementation is key to its success. Given that the outlined initiatives are highly interdependent and include somewhat ambiguous performance metrics, it is important that the IRS communicates progress frequently to the public and policymakers to ensure the funds are used efficiently. Ultimately, a failure to meet the stated objectives in this plan would hurt taxpayers and the IRS’s reputation alike.