Breaking Down the IRS Plan for $80B Inflation Reduction Act Funds

After receiving $80 billion from the Inflation Reduction Act in 2022, the IRS has released a strategic plan for the allocation of those funds. The 150-page Internal Revenue Service Inflation Reduction Act Strategic Operating Plan goes into great detail on its five objectives, outlines how it plans to reach those objectives, shares overall strategy and even paints a picture of how certain areas and services may look in the future.

Prior to the release of this strategic plan, “increased enforcement” was said to be a major focus and while it seems to be one of the main priorities for the funding, the IRS plans to address other key issues.

Each of the five objectives comes with individual smaller projects, a roadmap, and milestones for measuring the path to improvement. Without going too deep into each objective, the objectives and the proposed spending are as follows:

1. Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible. ($4.3 billion)
2. Quickly resolve taxpayer issues when they arise. ($3.2 billion)
3. Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap. ($47.4 billion)
4. Deliver cutting-edge technology, data and analytics to operate more effectively. ($12.4 billion)
5. Attract, retain and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers. ($8.2 billion)

Largest allocation of funds to enforcement, technology upgrades

The majority of the Inflation Reduction Act funding will be deployed for enforcement of taxpayers’ complex filings and high-dollar noncompliance to address the tax gap. This will involve hiring and training professionals in specialty areas to understand complicated business structures and high-net worth taxpayers. These individuals will utilize advanced analytics for more efficient case selection to improve compliance. Despite increased enforcement, the IRS recommitted to following Treasury’s directive to not increase audits with small businesses and individuals earning $400,000 or less.

The plan earmarks $12.4 billion to technology upgrades. In addition to modernizing interfaces and offering more intuitive online resources, the IRS plans to consolidate roughly 600 dated and loosely integrated applications currently in use. This objective also seeks to streamline employee access to taxpayer data, allowing employees to update accounts and resolve enforcement actions without navigating several applications, which currently operate independently. The improvements are also intended to improve online self-service options. This focus on technology would also emphasize data privacy and security and drive operations and business decision-making.

Improvements in customer service, issue resolution

IRS wait times and challenges with customer service have long been a major pain point with taxpayers, and the IRS plans to address some of those concerns with $4.3 billion of the Inflation Reduction Act funds. The Service hopes to enable taxpayers to securely file documents and exchange correspondence electronically, set up secure online accounts with real time status updates, and improve the online experience for tax professionals. Milestones for these digital improvements are as soon as fiscal year 2023.

Issue resolution may be considered as part of customer service, but there is a separate objective with $3.2 billion behind it to identify and resolve taxpayer issues in a timely fashion. The plan includes more thorough internal systemic checks for return completeness and consistency to be able to quickly notify the taxpayer of each issue identified to resolve them. Enhanced internal analytics will seek to detect non-filers more quickly and address common issues that may cause taxpayers not to file. The investment will also attempt to help taxpayers avoid additional penalties and interest with custom outreach regarding past-due balances and escalation of enforcement when appropriate. These changes are set to happen over the next three to five years.

Shorter wait times, better service for 2023 filing season

With the 2023 filing season mostly finished, it has been reported that phone wait times are down to roughly four minutes. A far cry from 2021 when wait times were reported to be nearly half an hour and that millions of calls went unanswered.

Are the shorter wait times evidence of the Inflation Reduction Act funds at work? It’s too soon to tell, but the improved customer service is encouraging. With the measurable goals and trackable milestones of the Inflation Reduction Act Strategic Operating Plan, we may not have to wait much longer to see even more marked improvements.