Taxpayer Services See Significant Improvement, But Challenges Remain
The Internal Revenue Service (IRS) has made notable strides in enhancing taxpayer services, thanks to the multiyear funding provided by the Inflation Reduction Act. According to an independent watchdog report, the agency has made significant progress in addressing taxpayer concerns, marking a welcome shift from previous years.
A New Era of Taxpayer Experience
Erin M. Collins, the National Taxpayer Advocate, began her 2024 annual report to Congress on a positive note, highlighting the noticeable improvement in the taxpayer experience. The IRS has leveraged the billions of dollars in funding to bridge service gaps, although Collins acknowledges that there is still room for improvement.
Unresolved Identity Theft Cases and ERC Claims
Despite the progress, the IRS continues to grapple with prolonged delays in resolving claims from taxpayers whose identities were stolen by fraudsters. The average delay has increased from 19 months in 2023 to 22 months in 2024. Furthermore, the agency is still working through a backlog of approximately 1.2 million claims for the Employee Retention Credit (ERC), a program designed to help businesses retain employees during pandemic-era shutdowns.
The ERC Conundrum
The ERC program, while well-intentioned, has been plagued by fraud. Scammers have targeted small businesses, offering help with applications for a fee, even if they didn’t qualify. In response, the IRS paused accepting claims in September 2023 due to rising concerns about fraudulent applications.
Addressing Identity Theft and ERC Backlogs
IRS Commissioner Daniel Werfel acknowledges that identity theft remains a significant service gap, with the agency seeing higher numbers of theft victims overall since before the pandemic. To address this, the IRS is adding more resources to the issue and streamlining identity theft cases to resolve taxpayer issues faster. Werfel also emphasizes the importance of expanding the U.S. Tax Court’s jurisdiction to hear refund cases and providing more financial leeway to the Low Income Taxpayer Clinic program.
Funding Uncertainty Looms
While the Inflation Reduction Act provided a much-needed infusion of funds, the agency’s budget is now at risk of being cut. The original $80 billion allocation has been reduced by $1.4 billion, and a separate agreement will divert $20 billion from the IRS over the next two years. Treasury Department officials are urging Congress to unlock an additional $20 billion in IRS enforcement money, which is currently tied up in legislative language.
Preserving Progress
Collins warns that slashing Inflation Reduction Act enforcement funding could inadvertently undermine taxpayer services and information technology. She recommends that Congress prioritize these areas, ensuring that the progress made so far is not lost. By doing so, the IRS can continue to improve the taxpayer experience and address the remaining service gaps.
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