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Quotes from Mark W. Everson, Former IRS Commissioner; alliantgroup Vice Chairman
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The agency plans to digitize its tax-processing pipeline and begin developing a government-backed online tax-filing software with money from the Inflation Reduction Act, one of President Biden’s chief legislative victories, officials announced in a 149-page report.
Retooling the IRS, which languished for more than a decade with budget and staffing shortages, was a key provision in the legislation to pay for spending on climate change and health care.
But it also appealed to Biden and Democrats’ political base as the president readies for a reelection campaign in which he’s signaled a populist economic appeal will be a central cause. He’s pledged not to increase taxes or audit rates on those making $400,000 or less.
“The tax system is not fair. It is not fair,” Biden said during his State of the Union address. “No billionaire should be paying a lower tax rate than a schoolteacher or a firefighter. I mean it.”
IRS Commissioner Daniel Werfel, who was confirmed to his post last month and had a ceremonial swearing-in this week, said in the report that his agency would create a “world-class customer service operation” where “Americans have confidence that all taxpayers, regardless of means, are doing their part to meet their responsibilities under our tax laws.”
Deputy Treasury Secretary Wally Adeyemo said in an interview that the IRS hopes to increase audit rates on wealthy individuals to 2011 levels, before congressional Republicans slashed its budget for five consecutive years.
“One of the things that people talk about when they say that the tax code is unfair is, if you’re low-income, you’re more likely to be audited than if you’re wealthy,” Adeyemo said in an interview. “That is not consistent with tax fairness.”
The IRS will hire hundreds of employees in the coming years with skills to undertake those audits and to transform the agency’s technology to better spot noncompliance. Werfel is set to brief lawmakers later this month on the agency’s hiring plans, the official said.
In 2019, the most recent year for which data is available, the IRS audited 0.4 percent of taxpayers earning at least $500,000, down from 4.5 percent in 2011.
The most impoverished filers in 2019, those reporting zero positive income, were audited 0.8 percent of the time, more than twice the rate of wealthier taxpayers the same year.
Republicans have criticized the IRS expansion, saying it would “supersize” the agency. Some falsely claimed it would lead armed government agents to harass taxpayers, prompting threats against agency employees.
“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 in remarks Tuesday after his ceremonial swearing-in.
The IRS has already spent nearly $850 million to improve taxpayer services and the agency’s ailing technology.
The IRS plans to introduce services to allow taxpayers to complete their returns electronically and solicit help from customer service representatives through secure online portals, according to the report.
It will invest in digital scanning technology for paper tax returns. Roughly 10 percent of filers submit hard-copy returns, bogging down the agency with millions of pieces of paper. Werfel said the IRS will spend Inflation Reduction Act money to purchase more scanning equipment, with the goal of eliminating the paper backlogs that snarled the 2022 tax season.
“The vision is that you’re going to be able to interact with the IRS the way you would any other company,” Adeyemo said.
The agency is also in the midst of commissioning a report on the feasibility of its own tax prep software. The IRS diverts online filers to private firms such as Intuit TurboTax and H&R Block to file taxes electronically. Nearly 70 percent of taxpayers qualify for “IRS Free File,” which directs them to other software programs.
Instead, with the new funding, the agency will consider a “question-based electronic service to prepare and file tax returns directly with the IRS,” the report states. The IRS commissioned a study on such a program with the left-leaning New America think tank this year.
But the tax service’s report cautioned that the Inflation Reduction Act funding alone would not be enough for the IRS’s technology, customer service and compliance improvements.
The agency warned that budget cuts — or even just small increases that do not keep pace with inflation — would derail its transformation, forcing it to divert money meant to be spent on IT upgrades or taxpayer services to keep its head above water in coming tax seasons.
“To fund the government, you need an effectively functioning and fair Internal Revenue Service,” said Mark Everson, who served as IRS commissioner from 2003 to 2007 and was briefed on the strategic plan by administration officials. “Things have gotten so complex, and there have been so many changes, and yet the service has clearly not been able to keep up.”
If Congress cuts the IRS’s budget in 2024 or does not factor inflationary costs into the agency’s annual appropriation, the agency would exhaust its $3.2 billion in IRA taxpayer services funding within four years, the report says. The agency will also be unable to fund its IT modernization projects without additional funding from Congress.
That’s a risky position for the IRS, which frequently finds itself in partisan crosshairs, said Douglas Holtz-Eakin, president of the conservative think tank American Action Forum and a former director of the Congressional Budget Office. House Republicans have passed legislation to strip the IRS of much of the Inflation Reduction Act funding, (The Democratic-controlled Senate is unlikely to take up the bill.)
Appearing to give Congress an ultimatum about the IRS’s capabilities, he said, rather than working with lawmakers to secure more funding, could spell trouble.
“Don’t blackmail people,” Holtz-Eakin said, “give them options. This should be about the [IRS’s] plans, and not what the Congress does.”
“To fund the government, you need an effectively functioning and fair Internal Revenue Service,” said Mark Everson, who served as IRS commissioner from 2003 to 2007 and was briefed on the strategic plan by administration officials. “Things have gotten so complex, and there have been so many changes, and yet the service has clearly not been able to keep up.”
About Mark Everson
The Honorable Mark W. Everson was the nation’s 46th Commissioner of Internal Revenue Service serving from 2003 until 2007. Prior to joining the IRS, Everson held Bush administration posts as Deputy Director for Management at the Office of Management and Budget and Controller of the Office of Federal Financial Management. Everson also served in the Reagan administration, holding several positions at the United States Information Agency and the Department of Justice, where his assignments included Deputy Commissioner of the Immigration and Naturalization Service. At the state level, Everson oversaw the Indiana Workforce and Unemployment Insurance Systems under Governor Mitch Daniels.
