The Internal Revenue Service is making progress on its modernization efforts after receiving billions in extra funding, with plans to create online accounts for businesses, improve its online accounts for taxpayers and tax professionals, open more walk-in taxpayer assistance centers in remote locations, and add extra capabilities for submitting forms via mobile phones while cracking down on high-income tax evaders.
"This is an exciting time for the IRS and for the tax system," IRS commissioner Daniel Werfel said during a press conference Thursday. "Thanks to funding provided by Congress in the Inflation Reduction Act of 2022, we've started transforming IRS operations. These will provide significant benefits for taxpayers, tax professionals and the tax system over the next decade. We have a unique opportunity, a once-in-a-generation chance, to envision and realize the future of tax administration."
The IRS is adding enhanced capabilities for tax professionals' online accounts, including account authorization management and payment viewing by the end of September, and live chat and secure two-way messaging in fiscal year 2024.
The IRS is also launching new business online accounts, allowing businesses to view outstanding balances, make payments online, and conduct a business tax check. Business online accounts will initially be available for sole proprietors by the end of September.
In addition, the IRS is improving the capabilities in individual taxpayer accounts, including secure messaging, live chat and virtual assistance. Taxpayers will be able to validate their bank accounts and save multiple accounts. The IRS made virtual assistance and live chat available to taxpayers in May and it plans to launch the validate-bank-account-information feature by the end of September.
By next filing season, the IRS will be making significant improvements to the ability to access and find information on its IRS.gov website, including improvements in home page updates, filing season content updates and more intuitive global site navigation.
1099 forms
The IRS is also improving the ability to file 1099 forms by integrating with outside tax software providers and systems. Bulk filers, third-party transmitters and software developers will be able to transmit from their system to the IRS's Information Return Intake System, or IRIS for short, their bulk filings of the Form 1099. Bulk filers will soon be able to transmit hundreds of thousands of 1099 forms at once through the new platform.
"This is an important milestone to note because it shows how quickly the IRS can build on its new technology products," said Werfel. "IRS just launched the 1099 tool in January, and its capabilities are already being significantly expanded."
This will become especially important when the IRS begins receiving the expected onslaught of 1099-K forms after Congress lowered the reporting threshold for third party payments from $20,000 to $600 under the American Rescue Plan Act of 2021. The IRS delayed the requirement last December to get its systems ready (
In addition, the IRS has been expanding its ability to respond to tax notices directly online. "Until this filing season, when taxpayers received notices for things like document verification, they had to respond through the mail," said Werfel. "During the filing season, taxpayers were able to respond to 10 common notices for credits like the Earned Income and Health Insurance Tax Credits online, saving them time and money. By mid-August, IRS will provide this capability for taxpayers to respond digitally to an additional 53 notices and letters received from the IRS. These updated IRS notices and letters will provide a URL for the taxpayers to submit their response digitally, instead of mailing the response to the IRS."
Mobile forms
The IRS is also enabling taxpayers to submit mobile-friendly forms. Electronic versions of the Forms 941-X (amended form processing), 943-X (amended form processing), 945-X (amended form processing), 4626, 7203, 7205, 7207, 7208, 7210, 8332, 8985, 8986, 1116 Schedule B, 1116 Schedule C, 1118 Schedule L, 1120S Schedule B1 and 8936 Schedule A will be made available to taxpayers for filing season 2024.
"This is also an important milestone to note because it ties into our goal of meeting taxpayers where they are and allowing them to interact with the IRS in the ways that work best for them," said Werfel. "An estimated 15% of Americans rely solely on mobile phones for their internet access — meaning they do not have broadband at home — so it's important to make forms available in mobile-friendly formats."
New scanning technology
The IRS is also replacing its old mail-sorting machines and adding high-capacity scanners to automate the processing of paper. "These new machines will allow the IRS to quickly open and prepare large volumes of mail for processing, which will result in the IRS processing paper returns and delivering refunds more quickly," said Werfel.
The IRS plans to replace at least six high-volume mail-sorting machines at locations in Kansas City, Missouri; Ogden, Utah; and Austin, Texas. The IRS will also replace 205 old scanners to improve its ability to quickly process the volume of incoming paper, with more in the pipeline.
"All told, 698 modernized scanners are funded," said Werfel. "These include high-capacity, desktop and handheld scanners so that the IRS employees can use them in all different situations, helping taxpayers and speeding work."
He noted that the IRS is also continuing to make significant progress with scanning and e-filing of paper returns. As of early April, the IRS had scanned about 480,000 forms, including 470,000 Form 940s and 10,000 Form 1040s and 941s. In the three months since filing season 2023 ended, the IRS has scanned nearly 250,000 additional forms. Out of nearly 725,000 total forms scanned this year, the IRS has now scanned about 484,000 Form 940s, 205,000 Form 941s and 35,000 Form 1040s.
The IRS is also testing a new mobile scanning app. "Digitization has far-reaching implications for how the IRS can improve service," said Werfel. "The IRS is currently testing a mobile application prototype, Inform Me. It will have the capability to scan a paper IRS form, notice or other document. The app will recognize the document and pull up related information and guidance on IRS.gov to help taxpayers get their questions answered and get it right."
The app is currently undergoing user testing with the IRS's industry partners and at this summer's Nationwide Tax Forums. After user testing is complete, the IRS will determine the timeframe for full deployment.
Direct file
Werfel was asked during the press conference about the IRS's plans for pilot testing a direct file system that will enable taxpayers to file their taxes directly online with the agency (
"The IRS is moving forward with a scaled voluntary pilot for next filing season," he responded. "The details of the pilot are currently being worked out, and I'm hoping to have an update in the near term with more details on what the pilot will look like."
The extra $80 billion in funding over 10 years from the Inflation Reduction Act is helping the IRS meet its goals, although Congress recently voted to pull back some of the funding to avert a default, and Republicans are pushing for steeper budget cuts. The IRS hopes its improvements since receiving the extra funding, along with its future plans, will enable the agency to keep more of that funding in place.
"Thanks to the Inflation Reduction Act, the 2023 filing season showed what the IRS can achieve for American taxpayers when it has the resources," said Laurel Blatchford, chief implementation officer for the Inflation Reduction Act at the Treasury Department. "The IRS achieved 87% levels of service exceeding [Treasury] Secretary [Janet] Yellen's goal of 85%. The IRS answered 3 million more calls, cut phone wait times to three minutes from 28 minutes, served 140,000 more taxpayers in person, digitized 80 times more returns than in 2022 through the adoption of new scanning technology, cleared the backlog of unprocessed 2022 individual tax returns with no errors, launched new digital tools, and enabled a new direct deposit refund option for taxpayers with amended returns. The IRS has not taken its foot off the gas and continues to make steady progress in improving service, enforcement and technology."
An appropriations bill for the Treasury and the IRS working its way through Congress is likely to include a rider that would prohibit the IRS from implementing the direct file system, and Werfel was asked about the administration's response to that.
"Congress required under the Inflation Reduction Act us at the IRS to study and assess the viability of a direct file option," he said. "We have issued our report, and as part of that report are now moving forward to a solution with taxpayers in the upcoming filing season. We have the funds in place to be able to run that pilot successfully. We hope that the information that the pilot provides will help inform policymakers on the future of direct file programs."
On Thursday, an advocacy group called Groundwork Action joined 12 other groups in a
Walk-in assistance
The IRS is expanding its walk-in taxpayer assistance centers and plans to set up new temporary centers to meet with taxpayers in remote parts of the country. In its new Community Assistance Visits initiative, the IRS will set up a temporary Taxpayer Assistance Center to give taxpayers in hard-to-reach areas an opportunity to meet face-to-face with IRS customer service representatives.
The IRS conducted the first event last month in Paris, Texas in partnership with the United Way and plans to hold similar events in more states, Werfel noted. Currently, seven more locations have been identified where the IRS will host Community Assistance Visits in Alpena, Michigan; Hastings, Nebraska; Twin Falls, Idaho; Juneau, Alaska; Lihue, Hawaii; Baker City, Oregon; and Gallup, New Mexico.
"Following enactment of the Inflation Reduction Act funding last August, the IRS has been able to open 35 additional locations across the country," said Werfel. "Nine of these have been added since early April. Our goal is to help taxpayers, meeting taxpayers where they are, and community assistance is a part of that."
Enforcement push
On the enforcement side, Werfel noted that in recent months, IRS Criminal Investigation has closed a lengthy list of cases in which wealthy taxpayers have been sentenced for tax evasion, money laundering and filing false tax returns.
"Instead of paying taxes owed, these evaders spent money owed to the government on gambling in casinos, vacations and luxury goods," he said. "For example, in one case alone, a person was ordered to pay more than $6 million in restitution."
The IRS closed about 175 delinquent tax cases involving millionaires in recent months, generating $38 million in recoveries. The IRS recently identified approximately 100 high-income individuals claiming benefits in Puerto Rico without meeting the residence and source rules involving U.S. possessions. As part of the IRS's effort to pursue offshore tactics, the Treasury and the IRS issued proposed rules last month that define Maltese personal retirement schemes used to avoid U.S. taxes as listed transactions. The IRS is working to identify taxpayers who are improperly using Malta-U.S. treaty rules to improperly claim exemptions, Werfel noted, and funding from the Inflation Reduction Act will enable the IRS to detect those who leverage these offshore schemes.
"We continue to intensify work around wealthy individuals who do not file tax returns," said Werfel. "These are particularly egregious cases where instead of filing their taxes and paying their fair share, these people are using the money to make lavish purchases. In one recently closed case, an individual used funds owed to the government to buy a Maserati and Bentley. We will continue to work with law enforcement partners to hold these individuals accountable."
