On April 6, 2023, new IRS Commissioner Daniel Werfel and Deputy Treasury Secretary Wally Adeyemo held a conference call to discuss the IRS’ strategic operating plan for the nearly $80 billion in Inflation Reduction Act funding that, according to Werfel, outlines “42 specific initiatives designed to achieve IRS goals.” (IR 2023-72, 4/6/2023)
Two days prior, Werfel spoke at his ceremonial swearing-in ceremony conducted by Treasury Secretary Janet Yellen, who said two major priorities Werfel and the IRS will be focused on are improving taxpayer service and “ensuring that large corporations and the wealthy pay the taxes they owe.” (see At Ceremonial Swearing-In Werfel Says Funding Plan Ready This Week, 04/05/2023)
Thursday’s call echoed these priorities and added more detail for changes the IRS has already begun and will implement down the road. “In all, the plan covers more than 190 projects with over 200 specific milestones,” Werfel said. He broke down the 150-page plan into components of customer service, compliance efforts, and technology updates.
Customer service improvements. Werfel started with some fiscal year 2022 IRS customer service statistics, admitting that millions of taxpayers “could not get the help they needed” regarding tax obligations. Only around 17% of the calls coming into the IRS were answered. Werfel explained that with this new funding, the IRS has added more than 5,000 phone assistants, and for the current filing season, the IRS has “consistently been able to provide an 80% to 90% level of phone service.” He noted that call waits times at the IRS have been reduced to an average of four minutes. Last year, average call wait times were 27 minutes.
Some short and long-term changes. The 50th IRS Commissioner provided a few examples of short and long-term changes being implemented at the IRS to “serve taxpayers and the nation.” This includes expanding in-person help and fully staffing all IRS Taxpayer Assistance Centers nationwide by 2024. Werfel also said that in the first five years of the IRS’ 10-year plan for the funding, taxpayers will be able to securely file documents, respond to notices online, and securely access and download their data and account history. “Taxpayers and tax professionals will have a clearer view of the tax information and easier ways to address issues with their tax return,” Werfel noted.
More technology. On the technological front, Werfel gave an example where taxpayers will be able to respond to IRS issues instantly by electronic means, and, “for the first time,” the IRS will help taxpayers identify credits and deductions for which they may be eligible. Taxpayers can also expect updated notices and forms to be more “user friendly” and available in more languages based on the needs of taxpayers.
Digital scanning. To reduce errors and increase the speed of processing refunds for paper tax return filers, the IRS will add more digital form scanning. Werfel said that the IRS is “already making incredible progress” on this project with more than 400,000 forms scanned. The IRS already announced digital scanning efforts with Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. He promised “even more” digital form scanning for the next filing season in an effort to eliminate paper form backlogs.
Another area where more digital scanning may help is with the 890,000 backlog of unprocessed Forms 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (as of March 29, 2023). Taxpayers may still make corrections, adjustments, or claim COVID-19 tax credits using this form, though the IRS has urged caution with the employee retention credit (ERC) as scam artists have been making claims of big tax refunds that may not be legitimate. (see IRS Director: ‘Think Twice ‘ Before Claiming Expired COVID-19 Employee Retention Credit, 03/23/2023)
Enforcement and compliance. Later in his remarks, Werfel turned to enforcement and compliance. “Funding from the Inflation Reduction Act … gives us the resources so [the IRS] can perform critical compliance work helping ensure fairness across income categories.” He specified that these enforcement efforts would start “at the top involving complex tax returns for wealthy individuals, large corporations, and big partnerships” and not apply to households making less than $400,000.
Questioning logic around $400,000 audit threshold. The $400,000 audit threshold was a directive from Yellen, which Werfel also vowed to follow. During the question and answer portion of the April 6, 2023 conference call, a reporter asked Werfel about the “logic in this directive” for the $400,000 threshold. “Why is it less important for somebody making $350,000 to pay what they owe?” he asked.
Werfel referred back to Yellen’s directive to use Inflation Reduction Act resources to focus “exclusively on high-income taxpayers.” “She says that threshold is $400,000,” Werfel stated. He added a hypothetical situation where the IRS “might take a second look” at an individual who made $5 million one-year and then $399,000 the next year to reason that the IRS is not ignoring entirely those near the threshold, but also said that the IRS “believes that 99% of taxpayers … are doing the right thing.”
“We are looking at different things to make sure that we’re drawing that line correctly,” Werfel concluded.
Federal employment taxes. The lengthy IRS plan contains items related to federal employment taxes. For example, on page 16, the IRS says that in the future, taxpayers may engage with a “chatbot” with initial questions about how to file employment tax returns before requesting further assistance from an IRS agent.
With regard to enforcement, page 74 discusses developing enforcement approaches and compliance treatments for tax types including federal employment taxes by refining tools and processes for auditing key areas and using improved analytics to identify patterns of noncompliance. The discussion notes that enforcement and compliance have been too low in employment tax, among other areas.
More digital scanning for federal tax forms. On page 22, the IRS plan talks about expanding digital services that includes enhanced scanning of key tax forms for the 2023 fiscal year that include Form 940, Form 941, Employer’s Quarterly Federal Tax Return, and Form 1040, U.S. Individual Income Tax Return.
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