IRS releases Strategic Operating Plan update outlining future priorities; transformation momentum accelerating following long list of successes for taxpayers

IR-2024-130, May 2, 2024, WASHINGTON – The Internal Revenue Service today released an update on the Strategic Operating Plan, a blueprint outlining future plans for the agency’s transformation work and highlighting dozens of improvements for taxpayers since passage of the Inflation Reduction Act.

 

The annual update focuses on major accomplishments the agency has accomplished since IRA’s passage in August 2022. The sweeping array of changes has improved taxpayer service, taken steps to add fairness to tax compliance and added new technology tools to help taxpayers and the tax professional community. These efforts culminated this year in one the agency’s most successful filing seasons ever with dramatic improvements in taxpayer service and new tools.

 

In addition, the IRS released an accompanying 52-page document that summarizes the current work underway and outlines the agency’s historic plans to make fundamental changes with Inflation Reduction Act (IRA) funding. The report focuses on changes underway and planned for Fiscal Years 2024 and 2025 across taxpayer service, tax compliance and technology modernization.

 

IRS Commissioner Danny Werfel described the modernization changes outlined in the Strategic Operating Plan as a “generational imperative” needed to serve the nation and taxpayers.

 

“You will see in these documents that we have made tremendous progress toward realizing the goals of the plan, and work continues to accelerate,” Werfel wrote in the report’s introduction. “We have made fundamental changes that have improved taxpayer services, brought new fairness to compliance efforts and launched important changes to our technology. We are making a difference to taxpayers and the nation, and the improvements at the IRS are just beginning.”

“The changes outlined in this report are a stark contrast to the years of under-funding that deteriorated taxpayer service and tax enforcement, frustrating taxpayers, the tax community and IRS employees alike,” Werfel added. “The funding provided by the Inflation Reduction Act creates a unique opportunity to realize a future of tax administration that meets the evolving needs of taxpayers. This opportunity is important for the future of the IRS, the nation and especially the taxpayers we serve.”

 

The road ahead in 2024 and 2025

 

The Strategic Operating Plan update issued today refines last April’s initial plan. The update provides an outline of the major projects and outcomes IRS expects to deliver over the next 12 to 18 months, including progress on the Simple Notice Initiative, enforcement activities and efforts to modernize foundational technology and improve IRS employee tools to help taxpayers. The update also includes additional details on spending and staffing.

 

The plan focuses on five key objectives:

 

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

 

The Strategic Operating Plan update also highlighted a number of areas where changes will accelerate into Fiscal Year 2025. Key areas of focus through 2025 include:

 

• Enhancing live assistance through improved efficiency in call centers, reduced backlog of paper returns and continued expanded staffing levels at Taxpayer Assistance Centers and “Pop-up Live Assistance Centers” in rural and other areas, while working to ensure taxpayers are aware of all available credits and benefits.
• Expanding online services by expanding the features available in online accounts, including digital copies of notices, status updates, secure two-way messaging and expanded payment options.
• Accelerating digitalization by providing up to 150 non-tax forms in digital mobile-friendly formats in addition to the 20 delivered in fiscal year 2024 as well as scanning at the point of entry virtually all paper-filed tax and information returns.
• Simplifying notices by redesigning up to 200 notices, capturing 90% of all notice volume for individual taxpayers and initiating business process changes necessary to flexibly generate notices and reduce taxpayer burden.
• Disrupting tax scams and schemes by coordinating with partners to identify scams and victims and improving victim assistance.
• Modernizing foundational technology and aged programming from the point of intake of tax returns and information systems. Data security will be integrated throughout to protect the integrity of the tax system and taxpayers.
• Modernizing how the IRS attracts, retains, develops and empowers employees, focusing on efforts to ensure they have the tools, training and culture they need to perform at their best.
• Improving IRS employee tools by developing and integrating high priority software tools into operations to help taxpayers and improve service.
• Ensuring fairness in enforcement through hiring and increased training in critical staffing areas such as those dedicated to high-income earners and large and complex partnerships.

 

More audit focus on wealthiest taxpayers, large corporations, partnerships

 

The report also notes that the IRS anticipates increasing audits on the wealthiest taxpayers, large corporations and large, complex partnerships by sizable percentages for tax year 2026:

 

• The plan highlights the IRS 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.
• The IRS will increase audit rates by nearly ten-fold on large, complex partnerships with assets over $10 million, going from 0.1% in 2019 to 1% in tax year 2026.
• The IRS will 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.
• At the same time, the IRS continues to emphasize the agency will not increase audit rates for small businesses and taxpayers making under $400,000, and those rates remain at historically low

 

Upcoming changes build off major improvements in taxpayer service, compliance and IT

 

The changes planned for the rest of 2024 and 2025 build off a long string of successes made by the IRS in less than two years.

 

During the just completed 2024 filing season, the IRS answered over a million more calls than last year while maintaining an average wait time of just over three minutes. The callback option saved taxpayers an estimated 1.5 million hours of sitting on hold. IRS Taxpayer Assistance Centers served more than 780,000 taxpayers in person, an increase of more than 37% over last year.

 

Using IRA funding, the IRS enhanced many online tools, such as Where’s My Refund, Individual and Tax Pro Online Accounts, while also launching new ones, including the Business Tax Account for individual partners of partnerships, individual shareholders of S corporations and sole proprietors with an employer identification number (EIN). And more than 140,000 taxpayers submitted tax returns through Direct File, a pilot program for taxpayers to file for free, directly with the IRS.

 

Using IRA funding, the IRS also saw progress in enforcement activities, recovering $520 million in its efforts to pursue high-income, high-wealth individuals who have either not filed their taxes or failed to pay recognized tax debt. Using artificial intelligence (AI) and advanced analytics to help select complex partnerships for audits, the IRS opened audits of 76 of the largest partnerships in the U.S. that represent a cross-section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries.

 

Werfel: Much more work remains; challenges continue with funding

 

While the IRS has accomplished a lot so far with IRA funding and under the Strategic Operating Plan, Werfel emphasized the agency has a lot more work in front of it to continue the transformation efforts.

 

“While we have made significant progress, we realize we need to do a lot more to make improvements and transform the IRS for the benefit of taxpayers, tax professionals and the nation,” Werfel said. “We have an opportunity to build a 21^st century tax agency to serve the American people in the manner they expect – and the level they deserve.”

 

Werfel noted that the Strategic Operating Plan update also highlighted ongoing funding challenges. While the Inflation Reduction Act funding provides tens of billions of dollars, years of under-funding have created unique challenges for the agency.

 

In addition, given current funding structures, the Strategic Operating Plan noted that the agency anticipates Business System Modernization funding provided under IRA – critical for technology improvements – will run out by fiscal year 2026. And current levels of taxpayer service will be unable to be supported through fiscal year 2026. This means that the nearly 88% level of service delivered for taxpayers this filing season on the IRS main phone lines could drop back to 30% levels in 2026 – meaning seven out of 10 taxpayers couldn’t get through to an assistor when calling.

 

“The IRS will continue focusing on making improvements and efficient use of funding,” Werfel said. “We highlight accomplishments rather than taking a victory lap because more work remains. But to stress the importance of continuing this momentum, the IRS will continue working to make a difference for the nation’s taxpayers. At the same time, it’s critical that the IRS has stable, secure funding to allow technology modernization and taxpayer service improvements to continue into the future.”

 

The Administration’s Fiscal Year 2025 budget proposal would restore and maintain the full IRA investment in the IRS through 2034 and avoid funding cliffs that would dramatically degrade IRS work ability in many different areas, including taxpayer services beginning in 2026 as well as technology modernization.

 

To address these funding cliffs, the Administration’s budget plan includes a mandatory proposal that will extend IRA funding through FY 2034. This proposal would provide $104 billion to the IRS over the 10-year budget window and is estimated to generate at least an additional $341 billion in revenue for the nation.

“This funding will ensure the IRS can continue its transformation efforts that we have outlined in the updated Strategic Operating Plan,” Werfel said. “We need to continue working to make more improvements in taxpayer service, modernize technology and ensure those with complex returns, including certain high-income individuals, large corporations and complex partnerships, pay the taxes they owe.”