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Federal Tax

TIGTA Reports Serious Challenges Facing IRS for FY 2023

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

J. Russell George, the Treasury inspector general for tax administration, has submitted a memorandum to Treasury Secretary Janet Yellen offering the internal watchdog’s “perspective on the most serious management and performance challenges confronting the IRS” for fiscal year 2023. (Memorandum dated October 13, 2022)

George emphasized the effect the Inflation Reduction Act of 2022 (PL 117-269), with its $80 billion in agency funding and numerous tax provisions, will have on the IRS.

“It will be a significant challenge for the IRS to administer these provisions and effectively use the additional funding to address the challenges of improving taxpayer service, modernizing outdated technological infrastructure, and increasing equity in the tax system through added enforcement actions,” the memorandum stated.

“Protecting taxpayer rights … is interconnected with the management and performance challenges outlined in this memorandum,” George wrote.

For FY 2023, TIGTA identified the following as the IRS’ top management challenges:

  1. As of August 12, the IRS had more than 14 million individual and business paper returns waiting to be processed. The number of calls answered and Level of Service on toll-free telephone lines remain at far-from-acceptable levels.
  2. Protecting Taxpayer Data and IRS Resources. “The proliferation of stolen Personally Identifiable Information poses a significant threat to tax administration by making it difficult for the IRS to distinguish legitimate taxpayers from fraudsters,” according to the memorandum. Tax-related scams, and the methods used to perpetrate them, are continually changing and require constant monitoring by the IRS. The IRS’ ability to continuously monitor and improve its approach to taxpayer authentication is a critical step in defending the agency against evolving cyber threats. Currently, the IRS sustains more than 1.5 billion attacks each year.
  3. Modernizing IRS Operations. Successful modernization of systems and the development and implementation of new information technology applications are critical to meeting the IRS’ evolving business needs and enhancing services provided to taxpayers. The agency uses different legacy case management systems that vary widely in complexity, size, and customization to support tax administration. “Modernizing the IRS’ computer systems has been a persistent challenge for many years and will likely remain a challenge for the foreseeable future,” George wrote.
  4. Administering Tax Law Changes. “One of the continuing challenges the IRS faces each year in processing tax returns is the implementation of new tax law changes as well as changes resulting from expired tax provisions,” the memorandum stated. For example, the recently passed Inflation Reduction Act includes numerous tax provisions, including the creation of a corporate alternative minimum tax and tax incentives for companies and consumers who make cleaner energy choices. “This will require the IRS to act quickly to assess the change and determine the necessary actions to ensure that all legislative requirements are satisfied,” it noted.
  5. Increasing Domestic and International Tax Compliance and Enforcement. “The IRS has indicated that insufficient funding remains a constraint to address its operations,” George stated. Over the next six years, the IRS estimates it will need to hire 52,000 employees just to maintain its current staffing levels. Although increased funding provided for in the Inflation Redution Act will assist the IRS in replacing employees lost through attrition, onboarding, training, and assimilating large numbers of employees will create its own challenges for the IRS, the memorandum stressed.
  6. Reducing Tax Fraud and Improper Payments. While the IRS continues to increase the number of fraudulent tax returns detected and stopped from entering the tax processing system, the problem remains persistent, both with individual and business tax returns. To combat business identity theft, the IRS should adopt “successful taxpayer detection and assistance options, similar to what it provides individual taxpayers.” The IRS continues “not to be in compliance with the goal of reducing the overall improper payment rate for the Earned Income Tax Credit, the Additional Child Tax Credit, and the American Opportunity Tax Credit to less than 10%.”

“Although not listed separately, human capital is also a significant concern and it affects the IRS’ ability to address the above challenges,” George wrote, adding that “it remains a serious, underlying issue with wide-ranging implications for both the IRS and taxpayers.”

 

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