The IRS, in the final stretch of this year’s filing season, is bringing on board a new permanent commissioner to oversee a major overhaul of the way the agency does business.
Danny Werfel, a former acting IRS commissioner under the Obama administration, was sworn in Tuesday to serve as the agency’s 50th permanent commissioner.
Werfel, during his five-year term, will be the first IRS commissioner to spend down a significant portion of the nearly $80 billion in the Inflation Reduction Act meant for the agency to rebuild its workforce and modernize its legacy IT over the next decade.
Werfel said the IRS will outline its spending priorities for this ‘historic investment’ in greater detail, when it released its Strategic Operating Plan later this week.
Treasury Secretary Janet Yellen originally expected the IRS to release that report in mid-February.
The IRS is staffing up and modernizing its operations over the opposition of House Republicans, who have raised concerns over the agency hiring an “army of IRS agents,” and have sought to roll back the agency’s new multi-year funds.
“Despite what some might think or say, these public servants within the IRS are armed only with calculators and their skills to help us address complex issues,” Werfel said. “Their work will give people confidence that all taxpayers, regardless of means, are being treated fairly under the tax laws.”
Werfel said the upcoming Strategic Operating Plan will focus on how the agency will end long wait times over the phone regardless of the time of year.
He said the IRS will also develop a more detailed version of its existing “Where’s My Refund?” service and invest in more digital scanning tools to expedite the processing of the millions of paper tax returns the agency still receives every year.
“Add these all up, and the new IRS will make a very complex tax system much easier for people. It will be easier for them to file and understand their tax obligations,” Werfel said.
Werfel praised the IRS workforce for persevering through underfunding and understaffing, all “while still maintaining the tax system and providing critical economic assistance during the pandemic.”
“I have been impressed, but not surprised, by the way IRS employees have always risen to the occasion, and delivered for taxpayers with limited resources available. Now, with new resources provided by the Inflation Reduction Act, I’m excited to see the great things IRS employees can come accomplish to help our nation,” Werfel said.
Yellen said Werfel will help lead the IRS through an important transition, and that the agency will be able to rebuild its workforce and its capabilities after facing “chronic underinvestment” for decades.
“I know that this is a transformation that all of you — the employees of the IRS — have long been waiting for,” she said.
Yellen said the IRS has made it a priority to use its newfound resources to dramatically improve its level of service to taxpayers, and stressed the agency saw a major improvement in its level of customer service, compared to last year.
Yellen said about 80-to-90% of taxpayers calling the IRS are getting through to a call center representative — a “dramatic improvement,” compared to the approximately 15% of calls the agency was able to answer during last year’s filing season.
The IRS, as of this January, processed more of its tax return backlog in the previous 12 months than during any one-year period in history.
“For years, severe underfunding of the IRS meant that it could not deliver the type of service that taxpayers needed. IRS employees will be the first to tell you that too many calls went unanswered and too many taxpayers went without support,” Yellen said.
The IRS, she added, has primarily functioned as a paper-based agency, “where employees still opened, and in certain cases, transcribed paper returns digit-by-digit.”
The agency is already taking steps to wean itself off paperwork, and move its workload into the digital era. Taxpayers can now receive refunds from amended tax returns via direct deposit.
Taxpayers can also fill out more forms and respond to IRS notices online, rather than submit them through the mail.
The IRS is looking to further invest in technology that increases the productivity of IRS employees, streamlines services for taxpayers and digitizes paper-based forms.
“Importantly, these technological improvements will not just speed up processes. They will help taxpayers identify and avoid errors before they file their returns,” Yellen said.
The IRS is looking to reopen and fully staff Taxpayer Assistance Centers across the country in time for next year’s filing season.
“These centers offer free tax help — to address complex tax questions and support those who face language barriers. We also need to make sure that small businesses and individuals can access the tax credits and incentives that they are eligible for,” Yellen said.”
The IRS, last year, met its goal of hiring 5,000 new customer service staff. The agency expects to hire another 5,000 customer service representatives by the end of this year.
The IRS is also focused on beefing up enforcement to shrink a growing “tax gap” between with taxpayers owe and what the agency is able to collect.
Without funds in the Inflation Reduction Act, Yellen said the tax gap was estimated to grow to about $7 trillion over the next decade.
“Much of this was because the IRS lacked the resources to effectively audit wealthy taxpayers and complex businesses,” she said. “The top 1 percent of Americans account for a disproportionate share of unpaid taxes.”
Yellen said the IRA funding, “combined with stable discretionary funding” from Congress in the annual appropriations process, will help shrink the tax gap.
The IRS will also invest in data and analytics tools to help the agency audit large corporations, high earners, and complex partnerships that have not paid their full tax obligations.
Yellen said the IRS will also hire more “top talent,” including accountants and attorneys, to ensure high-income individuals and businesses pay what they owe.
“These additional resources will help us peel back complex corporate structures and large taxpaying entities — and make sure that they pay what they owe,” Yellen said.
Yellen also praised the IRS for “going above and beyond” in recent years, despite constrained resources.
“I know that Danny will lead the IRS with the same dedication to the mission that you all share,” she said.