By Martha Waggoner, for Journal of Accountancy
Although the IRS says it has made great strides in customer service to taxpayers over the past year, "We have a lot more work to do," Commissioner Danny Werfel said Thursday.
That work includes improving interactions with tax professionals, a point Werfel highlighted as he outlined the IRS's updated strategic operating plan (SOP).
For example, 85% of calls to the IRS go to the toll-free line for Form 1040 filers, where wait times were down to three minutes, he said, describing the service to that line as "one of the best years we've ever had."
"But in the remaining 15%, there's work to do to improve our performance on those phone lines, and one of them is the tax professional line," he said.
In her 2023 report to Congress in January, National Taxpayer Advocate Erin Collins said it was harder to reach the IRS on the practitioner priority service line than on other numbers.
In addition to improving the service on the tax professional phone line, the Service plans to build a better online account for tax practitioners, Werfel said.
During a call with reporters, Werfel discussed the SOP and an SOP annual update supplement that summarizes changes underway and planning for fiscal years 2024 and 2025 across taxpayer service, tax compliance, and technology.
The SOP includes plans for allowing tax professionals to perform most required interactions with the IRS through their online account. Priorities for 2024 include allowing tax professionals to use their online accounts to
- initiate power of attorney or tax information authorization for business clients;
- view balance due for authorized clients;
- view payment activity pending, scheduled, and post payment; and
- make payments on behalf of individual clients.
Priorities for 2025 include allowing tax professionals to use their online accounts to
- link to a business centralized authorization file (CAF), enabling tax professionals to access their clients' data and act on behalf of a client;
- initiate power of attorney or tax information authorization for individual clients;
- make payments on behalf of a sole proprietor;
- make and modify payments on behalf of individual clients;
- provide status updates (e.g., changes in refund status); and
- make payments and set up payment plans on behalf of their clients.
"Our vision for modernizing the IRS is that everyone who needs to work with the IRS can do so completely digitally if they choose. We want to get there," Werfel said. "That means that we have to get to our individual online account, our business online account, and our tax professional online account to have all the functionality that means that they don't need to call us or go to a walk-in center if they don't want to."
The changes will mean "happier tax pros" who, because of technology, will be more efficient, Werfel said.
Werfel credited the changes to the money appropriated by Congress through the Inflation Reduction Act of 2022, P.L. 117-169.
The legislation appropriated $80 billion to the IRS over 10 years, but $20.2 billion of that was rescinded in the Further Consolidated Appropriations Act, 2024, P.L. 118-47, which was passed in March and which avoided a federal government shutdown.
The Biden administration's fiscal year 2025 budget proposal includes extending the full Inflation Reduction Act investment through 2034, which would provide $104 billion to the IRS. It also would generate at least an additional $341 billion in revenue, Werfel said.
The SOP annual update supplement says that the IRS anticipates that the business system modernization funding provided under the Inflation Reduction Act — critical to the IRS technology improvements, Werfel said — will run out by fiscal year 2026.
"And the current levels of taxpayer service will be unable to be supported through fiscal year 2026, meaning that the 88% level of service delivered this filing season on the IRS main phone line could drop back to 30% level of service in 2026," he said. "That would mean seven out of 10 taxpayers couldn't reach us on the phone."
The IRS has about 94,000 employees for fiscal year 2024 — or 90,000 full-time equivalents (FTEs) — up from 79,000 FTEs in 2022. By fiscal year 2029, the IRS plans to add another 14,000 FTEs, bringing the total FTEs to 104,000, he said.
The SOP annual update also highlights the Service's plan for increased audits on the wealthiest taxpayers, large corporations, and partnerships for tax year 2026. The IRS says it will nearly triple audit rates on large corporations with assets over $250 million to 22.6% in tax year 2026, up from 8.8% in tax year 2019. It plans to increase audit rates by nearly tenfold on large, complex partnerships with assets over $10 million, going from 0.1% in 2019 to 1% in tax year 2026. The IRS will also increase audit rates by more than 50% on wealthy individual taxpayers with total positive income over $10 million, with audit rates going from an 11% coverage rate in 2019 to 16.5% in tax year 2026.
Meanwhile, the Service continues to emphasize that it will not increase audit rates for small businesses and taxpayers making under $400,000 and says those rates remain at historically low levels.
It is too early to say whether these audits are increasing voluntary compliance among similar taxpayers, Werfel said. Still, he said the work "has impact beyond just the audits that we select. It sets an important tone and message for complex filers, large filers, high-wealth filers that this is our focus area. And we believe that it incentivizes organizations to be even more diligent in ensuring that they're meeting their tax responsibilities."
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