The Internal Revenue Service is getting specific on how it wants use $80 billion in extra funding over a decade to bolster top-end tax enforcement, and shore up customer service for millions of taxpayers.
Everyday taxpayers can expect more ways to quickly deal with the IRS online and over the phone, while getting help from the agency spotting possible errors before filing or alerts to eligible tax breaks.
Meanwhile, wealthy taxpayers and large corporations can expect extra scrutiny on complex tax returns to make sure they’ve paid their full tax obligation, according to a spending plan IRS and Treasury Department officials unveiled Thursday.
The hiring plans include bringing on more than 7,000 staffers for enforcement over the coming two years.
“The hiring plans include bringing on more than 7,000 staffers for enforcement over the coming two years. The IRS had approximately 80,000 full-time employees at the end of fiscal year 2022.”
The IRS had approximately 80,000 full-time employees at the end of fiscal year 2022, down from more than 95,000 in 2010. There are approximately 2,600 staffers focused on the tax returns of high net worth taxpayers, corporations and partnerships, the agency said.
But while the audit rates on complex, time-consuming high-end returns will increase, Danny Werfel, the new commissioner at the IRS, pledged the rates will not increase from past levels for households under the $400,000 mark.
That’s been a major flash point before, during and after the Inflation Reduction Act’s passage in August. The legislation passed along party lines, when Democrats controlled the House of Representatives and the Senate.
“People who get W2s or Social Security payments or have a small business should not be worried about a sudden new wave of IRS audits. We’re taking that off the table,” he told reporters on Thursday.
“‘Our focus will be on other, high dollar areas for quite some time because there’s a lot of work to do in those more complex areas of tax law that will take years to accomplish.’”
“Our focus will be on other, high dollar areas for quite some time because there’s a lot of work to do in those more complex areas of tax law that will take years to accomplish.”
In tax year 2017, the most recently available final audit rates, IRS statistics show the audit rate ranged from 0.2% to 0.6% for households with a net worth of between $1 and $500,000. For taxpayers worth more than $1 million, the IRS said Thursday that the audit rate fell to 0.7% in 2019, down from 7.2% in 20211.
Supporters and critics have been waiting to hear more about how the IRS plans to use the money.
Some Republican critics focused on a 2021 Treasury Department estimate that the IRS was projecting a need to bring on 87,000 new employees. The fiery rhetoric from some quarters warned these would all be auditors — possibly even armed — and the results would be more audits for middle-class taxpayers.
The IRS does have a criminal investigation unit, but Werfel said Thursday it “makes up 3% of the IRS workforce and there no plans to increase that percentage as we move forward with the Inflation Reduction Act.”
“The bottom line is we’re going to hire more customer service agents and data scientists than anyone ever expected,” said Wally Adeyemo, deputy secretary at the Treasury Department.
“‘We don’t want to be locked into numbers on a piece of paper because we do want to see the benefit that we can get from technology and how we can build a flexible workforce.’”
There are reasons why the plan isn’t announcing how many people will get hired over a number of years, Adeyemo explained.
“We don’t want to be locked into numbers on a piece of paper because we do want to see the benefit that we can get from technology and how we can build a flexible workforce that will help use meet the needs of the American people and also help us bring in revenue,” he said.
As the pandemic temporarily shuttered IRS offices and Congress later tasked the agency with stimulus-check payments, child tax credit payments and law changes, processing backlogs grew, and the agency’s phone service fell off.
On Thursday, Werfel and Adeyemo said the IRS phone service is rebounding after hiring 5,000 customer-service helpers. The filing season ends April 18, but the IRS has already been able to answer one million more calls compared to the last filing season and wait times are much lower, Werfel said.
The IRS backlog to process returns hovered at 2.17 million unprocessed individual returns at the end of March. That consists of 2022 returns, 2021 returns with errors in need of a fix and over half-a-million paper returns.
One thing that’s gummed up the system: paper returns, which require labor-intensive transcription from IRS employees.
The IRS has already been increasing the scanning technology, and it plans even more in the years to come, Werfel said.
Within the first five years of the plan, taxpayers should be able to securely upload all their documents and respond to all notices online, Werfel said.
The tax agency has already started that process, and in fiscal year 2024, the plan is to make another 72 notices available for online response.
“For many, letters from the IRS in the mail could be a thing of the past,” Werfel said.
From the archives (August 2022): Fact check: No, the IRS is not hiring an 87,000-strong military force with funds from the Inflation Reduction Act
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