IRS Commissioner Danny Werfel may not expect taxpayers to actually enjoy dealing with the nation’s tax collection agency, but he thinks that it’s at least becoming much easier and simpler for them.
Taxpayers are getting more options to file; they’re getting real-time information about their refunds and receiving them sooner; and they’re spending less time on hold with the IRS when they have questions, he told reporters Friday in a press call.
The reason? The Inflation Reduction Act’s big cash infusion for the agency.
Originally, almost $80 billion had been set aside by the law for the IRS to spend over the coming years on enforcement, agency operations, customer service and upgrading its computer systems. Of that, about $20 billion was clawed back by congressional Republicans before it could be spent. Still, the IRA was a historic boon to what has historically been a cash-strapped agency.
“The Inflation Reduction Act is focused on outcomes that benefit all taxpayers, but that the results are now proving that out,” Werfel said.
“So it was our intention to spend Inflation Reduction Act [money] these ways, and now taxpayers are seeing it and feeling it. Each and every time they come to the IRS, we should be able to present an increasingly better environment for them to more seamlessly and easily go through the process of meeting their tax obligations.”
The stats for the 2024 filing season, which concludes Monday for most taxpayers, appear to bear out Werfel’s optimistic take on the agency’s direction.
According to the Treasury Department:
- 88% of callers to the IRS were answered, a rate above the 85% target and well above the pre-IRA 15% level seen in 2022;
- The average wait time for a call was only three minutes, below the five-minute target, even as call volume rose by 17% through early April compared to 2023; and
- In-person tax prep by volunteers has increased by about 200,000 returns, above the target of 50,000 returns.
“These accomplishments show that the IRS’ strong performance last filing was not a fluke,” said Treasury Secretary Janet Yellen. “It’s showing that when it has the resources it needs, it will provide taxpayers the service they deserve.”
While filing season stats may be the most well-known measure of IRS customer service, this year has also seen the unveiling of another IRA-funded initiative that has grabbed headlines: Direct File.
Under a new pilot program this year, taxpayers in 12 states were able to file their taxes electronically directly with IRS for free — no commercial software or web site needed.
According to a Treasury Department official, the final full week of the filing season saw usage grow to more than 5,000 returns a day, with most returns coming from California, Texas, Florida and Washington.
Igor Volsky, executive director of Groundwork Action, the political arm of progressive economic think tank Groundwork Collaborative, said Direct File was a good use of IRA money.
“People are pretty jazzed that we’re moving in a direction where you no longer have to pay a private company just to file your taxes,” he told HuffPost.
Volsky said in addition to the customer service and enforcement improvements, the IRA money has had another impact: reducing a racial gap in audits. The gap, attributed to the agency’s focus on auditing people who claim the earned income tax credit, has meant Black taxpayers face a disproportionate chance of being audited.
Werfel, he said, has “really started to do the hard work of why this gap exists and persists and how the IRS must close it.”
Tougher tax enforcement may be how the IRA’s impact may be most felt, however. Adjusted for inflation, funding for IRS enforcement fell by about 26% between 2010 and 2022, according to the Congressional Research Service.
The IRS currently estimates that in 2021, about $688 billion in taxes were not paid at all or paid late — the “tax gap.” With late payments, the gap closed to about $625 billion, but that’s still huge, even in federal budget terms. (For comparison, the total amount of regular annual spending on all of the non-defense government agencies for 2024 was set at $704 billion.)
The IRA money has allowed the IRS to try to close that gap in ways it was unable to before, such as by probing the tax compliance of large, complex corporations or partnerships. While the income of wage-earning or salaried employees is relatively easy for the agency to track, assessing the taxes owed by individuals in so-called pass-through corporations like partnerships is much more complicated.
In 2023, the IRS announced it was using artificial intelligence to help examine large partnerships and in January it said it was auditing 76 of the largest partnerships in the U.S., firms that included hedge funds, real estate partnerships, publicly traded partnership companies and law firms.
“Prior to the Inflation Reduction Act, we couldn’t modernize our technology at a good pace, and we certainly didn’t have the discretionary resources to be more innovative and to use more advanced analytics to track how money moves across complex organizations,” Werfel said.
Republicans have attacked the IRA specifically because it funded tax enforcement, saying it would result in average Americans being hounded by IRS agents. They proposed cutting $14.3 billion in IRS money to pay for aid to Israel, even though nonpartisan budget scorekeepers said that those cuts would also lose the government $26.8 billion in tax revenues.
Still, the White House has been careful to say any increased tax enforcement won’t hit families making less than $400,000 annually, a promise Republicans have been skeptical of.
Groundwork’s Volsky said the IRS so far has kept to looking at just “higher-net-worth individuals.”
“This is about ensuring that individuals pay their fair share of taxes and their legal share of taxes. For too long, the wealthy have avoided doing just that, passing the tax burden on to the rest of us,” he said. “I think this IRS is really dedicated to correcting that.”