How The IRS Might Spend Its Billions To Improve Taxpayer Services

It won’t be long before the IRS releases its proposal for how to use the almost $80 billion in supplemental funding that Congress granted it over the next 10 years in the Inflation Reduction Act (IRA, P.L. 117-169).

The plan is supposed to be out in mid-February. Although more than half of the $80 billion is earmarked for enforcement, there are also billions of dollars available for improving service to taxpayers and modernizing the IRS’s technological infrastructure. The wish list in the recent report from the national taxpayer advocate (NTA) to Congress is among the early indicators of what to look for in the announcement next month.

The IRA appropriated $3.2 billion and $4.8 billion, respectively, for taxpayer services and business systems modernization. Treasury Secretary Janet Yellen wrote in an August 2022 memorandum that the funding in the IRA is “a monumental opportunity to transform tax administration in this country,” but is also “a significant operational challenge” that requires modernization.

Her memo specifically directs the IRS to identify initiatives to improve taxpayer service, modernize technology, and increase equity in tax administration. Timelines for implementing these initiatives should be in the forthcoming plan.

NTA’s Wishlist

The NTA’s report said that the billions earmarked for taxpayer services and modernization “should be a game changer for taxpayers and tax professionals,” because it gives the IRS the opportunity to “bring U.S. tax administration into the 21st century.”

Several items on the NTA’s list of 13 priority recommendations to improve the experience of taxpayers were directed at making it easier for taxpayers to interact with the IRS online. Online accounts with functionality comparable to that of private financial institutions could function as a sort of self-checkout line for taxpayers. This is a top priority, because the ability of taxpayers and tax professionals to accomplish standard transactions such as filing tax returns, making payments, and receiving tax notices “usually will eliminate the need for visiting, calling, or sending correspondence,” the report states.

One way in which these accounts may differ from those at financial institutions is that practitioners would need to have the ability to access their client’s information as well as their own.

Until online accounts offer the ability to upload documents, the IRS should expand the use of its documentation upload tool, which allows users to take pictures of their documents and upload the images. According to the IRS, in addition to being expedient for the taxpayer, the tool offers “near-instant confirmation” that the IRS received the document. The development of the documentation upload tool shows that the IRS is already taking its cues from retail banking in its modernization efforts.

The NTA report also suggested that the IRS include a dashboard on its website to display current wait times by category of work, such as paper processing of returns, as well as metrics like the average time for taxpayers calling the IRS to get through to an IRS employee.

The dashboard could also indicate the length of time for resolving taxpayer correspondence, also by category. “The IRS’s lack of proactive transparency has not only frustrated taxpayers and tax professionals, but it has led to more work for the IRS,” the report explained. Because taxpayers and tax professionals can’t tell if the IRS has lost their return or letter or if it simply hasn’t gotten to it yet, they often try to contact the agency repeatedly while waiting for a response.

A regularly updated dashboard could help to forestall those types of calls, although it might not increase satisfaction with the IRS. The IRS already explains to taxpayers on its website that telephone service wait times can average 13 minutes during the filing season, and 19 minutes in the post-filing season. If the dashboard consistently announced long response times, it might instead add to taxpayer frustration.

In addition to the dashboard, the NTA report also recommends broader improvements to the IRS.gov website. The report took the lack of plain-language searching in the search engine to task: “The frustration is that the information often does exist on IRS.gov; a taxpayer just can’t find it.” National Taxpayer Advocate Erin Collins confessed in a blog post that she uses a commercial search engine and adds “IRS.gov” to her searches because the internal search function on IRS.gov is too aggravating.

The NTA report did note that the IRS has made strides in answering plain-language questions through its voicebot and chatbot tools. Even so, the website needs to make sure that taxpayers who aren’t finding what they need while searching IRS.gov know that a chatbot option is available.

In addition to improving the self-service options available to taxpayers online, the NTA report recommends using some of the new funding for hiring and training new employees. There is a shortage of employees in the Human Capital Office that has resulted in other divisions having difficulties hiring, the NTA report explained. Two areas in which a rapid increase in the number of employees is critical are taxpayer service and IT, the report said.

When Yellen announced in August that the IRS would provide a detailed plan for all $80 billion in new funding, she said she wanted it to include target metrics so that Congress and taxpayers would know where the money was supposed to go and, later on, be able to evaluate whether it had been spent in a way that achieved the intended purpose. The priorities outlined in the NTA’s report suggest possible avenues for improving assistance to taxpayers, giving a preview of the goals and benchmarks the IRS might propose in February.