On April 6, the IRS released the Strategic Operation Plan it provided to the U.S. Department of the Treasury describing how it plans to spend the $80 billion in additional multiyear funding it received under the Inflation Reduction Act of 2022 (IRA). The IRS’ plan is long on goals and broad initiatives but short on details. However, the initial reaction from many is that it is a good start. The IRS intends to update the plan annually.
The IRS’ plan is focused on five objectives as follows:
These objectives can be boiled down to service, compliance, enforcement, technology, and personnel.
Perhaps the most anticipated change is the promise of online taxpayer accounts where taxpayers, their advisers, and the IRS can view account history and obtain information such as transcripts and notices. Online tools will enable increased digital interaction with and submission of information to the IRS, similar to those recently deployed for certain individual tax matters. In addition, new payment options, some of which can be accessed directly through online accounts, will be deployed.
Some changes are intended to resolve issues more quickly through early error detection and automated notification of errors on filing. Notices and transcripts will be revised to make them easier to understand. Employees will have tools and be empowered to fully resolve matters. The IRS also intends to handle balance due accounts and nonfiling earlier.
Enforcement priorities are similar to what the IRS has been focused on for a while, like large businesses, high-income individuals, abusive transactions, and digital assets. The IRS’ plan includes more audits in these areas and raising the audit rate for employment, excise, and estate and gift tax returns. The IRS’ plan also includes a new compliance function to centralize priorities and case selection, which appears to be part of an overall reorganization of the IRS that is not detailed in the plan.
Modernizing the IRS’ technology is the thread that runs through most of the objectives and specific projects. The IRS plans to modernize its main systems for maintaining taxpayer accounts, which have been around since the 1960s, and create a single enterprise management system to replace its various single-purpose legacy systems. The IRS intends for these new systems to enable it to better use data for service and enforcement.
Technology probably is the trickiest aspect of the plan. The IRS has tried to modernize its systems for many years, but uncertain funding has made this effort difficult. According to the IRS, the plan’s technology modernization is possible only if the IRA funding remains and additional funding requests are enacted.
Under the final objective, the IRS is revamping its hiring, recruitment, training, and pay and career structure to hire people with needed skills like IT and tax technical knowledge. In addition, the IRS plans to change the culture of the IRS, including taking steps to “evaluate and communicate appropriate risk tolerances and risk appetites to support cultural change.” According to the IRS’ plan, a culture change would include a shift to “focusing more on consistency of outcome rather than consistency of process, or shifting from minimizing agency risk to minimizing taxpayer risk.” If implemented correctly, this change could be a big win for taxpayers when dealing with the IRS.
The fate of IRS funding remains uncertain, and the interdependency of the specific projects on each other complicates the ability to predict whether the goals articulated in this document will be realized. In addition, the plan does not address the IRS backlog. While the IRS has made strides in reducing inventories of prior year individual tax returns, and this filing season has had a good start with extremely high levels of telephone service, many business returns and amended returns remain unprocessed, and paper correspondence, including requests for penalty relief and fixes to account issues, remain unanswered. As a result, taxpayers should be prepared for an uncertain landscape in IRS service, enforcement, and technology.
SCOTUS sides with taxpayer in FBAR penalty case
President releases fiscal year 2024 budget