IRS unveils plan to crack down on tax cheats, improve service
Tax agency ‘has an opportunity to transform our operations and provide the service that people deserve,’ commissioner says
The IRS unveiled a 10-year plan Thursday for going after upper-income households and bigger businesses that dodge taxes while also becoming a more nimble agency with top-tier customer service.
The IRS mapped out how it plans to use $80 billion that Democrats passed in August to pad the agency’s coffers after years of stagnant funding. It devoted the bulk of money to bolstering enforcement of the tax code.
“The plan released today is a bold look at what the future can look like for taxpayers and the IRS,” Commissioner Danny Werfel said Thursday on a call with reporters. “Now that we have long-term funding, the IRS has an opportunity to transform our operations and provide the service that people deserve.”
The long-awaited plan to beef up IRS funding, which spans 150 pages, has been a partisan flashpoint on Capitol Hill and in last fall's midterm elections.
To Democrats, the plan is a salve for a battered tax agency that has seen its funding and staffing decline by roughly a fifth since fiscal 2010. What's more, they say, cracking down on wealthy tax cheats will help reduce federal deficits.
But Republicans have warned the plan would weaponize the IRS with an "army" of new auditors that would inevitably lead to increased enforcement against struggling middle-class families — a claim denied by the Biden administration.
The strategic operating plan lays out goals intended to make it easier for taxpayers to deal with the IRS to cut down on innocent mistakes and help people claim tax breaks they're owed; resolve more issues in real time; and boost enforcement for wealthier individuals, large corporations and owners of "pass-through" businesses who pay their business taxes as part of their individual returns.
To further those efforts, the IRS aims to upgrade to “cutting-edge” technology, data and analytics and invest in building a skilled workforce with a better culture.
The plan covers more than 190 key projects with over 200 milestones, Werfel said, noting a roadmap with that level of detail is needed for change at the scale that the IRS envisions.
But the plan offers less clarity on a pledge from Treasury Secretary Janet L. Yellen that audit rates won’t climb compared with historical levels for households and businesses making less than $400,000 per year. Republican lawmakers have questioned whether that promise will shield the $80 billion from funding any audits of taxpayers who fall under that threshold.
The Congressional Budget Office has estimated that the funding will lead to the collection of over $100 billion in increased tax revenue over 10 years and that some of that will come from taxpayers making less than $400,000 per year, though it would be a small fraction of the total.
Werfel aimed to tamp down concerns that any individuals or small businesses that fall below the $400,000 threshold will face a rise in audits anytime soon, saying the agency’s priority in the near term will be on hiring accountants, attorneys, engineers, economists and data scientists to make sure high-income and high-wealth individuals, owners of businesses with complex structures and big corporations pay what they owe.
“Let me be clear: Yes, the secretary’s directive references holding our audit coverage below historic rates for those earning $400,000, but we’ve got years of work ahead of us where we will be 100 percent focused on building capacity for high-income individuals and corporations,” Werfel said. “During this time, the audit rate for average taxpayers will not be increasing and as a result, we will not come close to hitting or exceeding any historic average rate.”
He later added that the IRS will have to be vigilant in figuring out if businesses or individuals are “masquerading as being middle- or low-income when they’re not,” citing the example of someone who made $5 million one year and $399,000 the next. The IRS might have to take a second look if a taxpayer’s income suddenly plummets to evade heightened enforcement, he said, noting that almost all taxpayers are trying to be honest.
It’s also unclear exactly what the IRS plans to spend on various objectives. Democrats tagged about $46 billion for enforcement, $25 billion for operations support, $3.2 billion for taxpayer services and $4.8 billion for modernizing technology in their August law.
Werfel said the strategic plan will evolve as the IRS gets feedback and that he and the agency are continuing to work through details. The report notes that the IRS will share more staffing information as time goes on, along with details on what it's spending ahead of major investments in new technology.
He highlighted some goals, including fully staffing taxpayer assistance centers across the country by next year, digitally scanning more paper tax returns to speed up processing, and allowing taxpayers to track the real-time status of tax refunds, return processing and audits within the next five years.
Deputy Treasury Secretary Wally Adeyemo said on Thursday’s call with reporters that the certainty of decade-long funding will allow holistic upgrades of IRS technology. He spotlighted some goals for modernizing the agency’s functions, including fully eliminating backlogs of paper tax returns and mail within the first five years of the plan and allowing correspondence with taxpayers to be fully digital.
Alliantgroup’s Mark Everson, who served as IRS commissioner during the George W. Bush administration, said in an interview that the agency laid out a strong approach including the goal of resolving more issues in real time. He said the trickiest areas to execute will likely be adopting more data analytics and bringing in new auditing staff.
“Hiring and training the right people for these enforcement positions is going to be difficult,” Everson said, noting a shortage of accountants and challenges in attracting people to work for the IRS.