Evaluating US IRS's (Internal Revenue Service) Transformation Efforts by 2031

Introduction:

The Internal Revenue Service (IRS) is undergoing a significant transformation, driven by the Inflation Reduction Act of 2022 (IRA). This legislation provides substantial funding to the IRS to enhance taxpayer services, modernize technology, and increase equity in tax administration. A recent evaluation report sheds light on the IRS's progress in implementing these transformational changes, highlighting key achievements and challenges faced during Fiscal Year 2023.

Background:

The IRA, signed into law in August 2022, allocated approximately $79.4 billion to the IRS through September 2031. This funding aims to improve taxpayer services, update computer systems, and increase compliance and enforcement actions against tax evaders. However, a rescission of $1.4 billion in June 2023, along with a potential future reduction of $20 billion in appropriations, has posed challenges to the IRS's transformation efforts.

Key Findings:

I. Strategic Operating Plan (SOP):

The IRS's SOP, released in April 2023, outlines 5 transformation objectives and 42 initiatives. While the SOP serves as the new strategic plan, its development faced delays due to feedback from IRS stakeholders and the Treasury Department.

SOP Transformation Objectives and Initiatives:

Objective 1: Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.

• Initiative 1.1: Improve the availability and accessibility of customer service.
• Initiative 1.2: Expand digital services and digitalization.
• Initiative 1.3: Ensure employees have the right tools.
• Initiative 1.4: Improve self-service options.
• Initiative 1.5: Explore direct file.
• Initiative 1.6: Enable taxpayers to access their data.
• Initiative 1.7: Provide earlier legal certainty.
• Initiative 1.8: Deliver proactive alerts.
• Initiative 1.9: Help taxpayers understand and claim appropriate credits and deductions.
• Initiative 1.10: Make payments easy.
• Initiative 1.11: Build status-tracking tools for taxpayers.
• Initiative 1.12: Streamline multichannel customer assistance.

Objective 2: Quickly resolve taxpayer issues when they arise.

• Initiative 2.1: Identify issues during filing.
• Initiative 2.2: Deliver early and appropriate treatments for issues.
• Initiative 2.3: Develop taxpayer-centric notices.
• Initiative 2.4: Expand tax certainty and issue resolution programs.
• Initiative 2.5: Offer proactive debt resolution.
• Initiative 2.6: Expand engagement with non-filers.
• Initiative 2.7: Use improved data and analytics to tailor timely collections contacts.

Objective 3: Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the Tax Gap.

• Initiative 3.1: Employ centralized, analytics-driven, risk-based methods for compliance case selection.
• Initiative 3.2: Expand enforcement for large corporations.
• Initiative 3.3: Expand enforcement for large partnerships.
• Initiative 3.4: Expand enforcement for high-income and high-wealth individuals.
• Initiative 3.5: Expand enforcement in areas where audit coverage has declined.
• Initiative 3.6: Pursue appropriate enforcement for complex, high-risk cases.
• Initiative 3.7: Promote fairness in enforcement activities.

Objective 4: Deliver cutting-edge technology, data, and analytics to operate more effectively.

• Initiative 4.1: Transform core account data and processing.
• Initiative 4.2: Accelerate technology delivery.
• Initiative 4.3: Improve technology operations and ensure data security.
• Initiative 4.4: Maximize data utility.
• Initiative 4.5: Apply enhanced analytics capabilities to improve tax administration.
• Initiative 4.6: Strategically use data to improve tax administration.
• Initiative 4.7: Partner to expand insights.

Objective 5: Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.

• Initiative 5.1: Redesign hiring and onboarding.
• Initiative 5.2: Attract a talented and diverse workforce.
• Initiative 5.3: Improve the employee experience.
• Initiative 5.4: Help employees grow and develop.
• Initiative 5.5: Develop a data-savvy workforce.
• Initiative 5.6: Elevate workforce planning strategy.
• Initiative 5.7: Improve organizational structures and governance.
• Initiative 5.8: Build a culture of service and continuous improvement.

II. Transformation and Strategy Office (TSO):

The TSO was officially established to oversee the IRS's transformation. It focuses on enterprise-wide transformation, cross-organizational prioritization, and strengthening the IRS's culture to support change.

III. Milestones and Progress:

Of the 58 milestones planned for FY 2023, 33% were completed, 62% were in progress, and 5% were delayed. Aggressive milestones were set to drive action and alignment across the IRS.

IV. Funding and Budget Shortfalls:

The IRS used $1.8 billion in IRA funding to cover budget shortfalls in FY 2023, with $800 million needed for Taxpayer Service alone. The continued use of IRA funds to cover appropriation shortfalls may impact the IRS's ability to fund its transformation efforts fully.

V. Implications and Future Outlook:

The IRS's transformation efforts under the IRA are crucial for improving taxpayer services, modernizing technology, and enhancing tax compliance. However, budget shortfalls and funding challenges pose significant hurdles. Moving forward, the IRS plans to update its SOP annually, report quarterly to Congress, and use its Strategic Implementation Management System (SIMS) to monitor and manage its transformation projects.

Conclusion:

The IRS's transformation journey under the IRA is a complex and challenging endeavor. While significant progress has been made, there are still hurdles to overcome. With continued support from Congress and effective management of resources, the IRS aims to achieve its transformation goals and provide taxpayers with a modern, efficient, and equitable tax administration system.

References:

- Treasury Inspector General for Tax Administration. "Inflation Reduction Act: Continued Assessment of Transformation Efforts – Evaluation of Fiscal Year 2023 Delivery of Initiatives."

- Congressional Research Service. "IRS-Related Funding in the Inflation Reduction Act, updated October 20, 2022."