Strategic Operating Plan for New $80 Billion IRS Funding

The IRS recently released a portion of its strategic operating plan outlining how it will allocate the $80 billion it was allocated in the Inflation Reduction Act of 2022 over the course of 10 years. The budget information covers the next three fiscal years, with a focus on operations support.

Audit Increases for Complex Cases

IRS Commissioner Danny Werfel and Deputy Treasury Secretary Wally Adeyemo have emphasized the Service's plan to increase audits of complex cases while avoiding raising audit rates for individuals earning under $400,000 annually. The three-year budget plan allocates nearly $3.5 billion (40%) for operations support, $1.78 billion (20%) for enforcement, and nearly $1.7 billion (19%) each for business systems modernization and taxpayer services.

The budget is designed to adapt to changing circumstances and needs as technology evolves. For example, the IRS anticipates that fewer workers will be needed to handle paper returns as more processes become automated, and more people answering phones could be assigned to taxpayer assistance centers.

Werfel notes that the IRS has seen a reduction in staffing and resources in recent years, which has impacted its ability to enforce tax laws. While there are currently 2,600 agents working directly on cases involving certain individuals, large corporations, and large partnerships, this is down from nearly 5,000 in 2010. Meanwhile, the number of individuals making over $10 million has increased to 30,600 from 13,300 a decade ago, and the number of large partnerships and S corporation filings has jumped to 300,000 from about 175,000. The IRS needs to focus on these areas to catch up and help close the tax gap, which averaged $496 billion per year for tax years 2014 through 2016.

Expanding Customer Service

The plan also includes several operational details, such as expanding customer callback options for IRS live assistance toll-free telephone lines, giving taxpayers access to secure online accounts, and allowing tax professionals to view status information for their clients. The IRS will also send notifications to taxpayers about potential issues as they file returns and add digital copies of all notices to online accounts.

The Inflation Reduction Act, which was enacted in August 2022, allocates nearly $80 billion to the IRS to be spent over 10 years, in addition to the Service's annual funding. The spending plan was requested by Treasury Secretary Janet Yellen and was submitted on April 6th, six months after the deadline. The plan has five primary objectives: improve taxpayer experience, quickly resolve taxpayer issues, expand enforcement efforts on high-income taxpayers and large businesses, operate more efficiently by delivering cutting-edge technology, and hire and retain a skilled workforce.

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