IRS seeks transformation in new 5-year plan

By Paul Bonner

Improving the taxpayer experience while surmounting operational difficulties that include a shrinking workforce are among goals the IRS has set for itself in the next five fiscal years.

The 26-page IRS Strategic Plan FY 2022–2026 (Publication 3744) was released Wednesday, outlining strategic goals broadly for service, enforcement, people, and transformation.

IRS Commissioner Chuck Rettig wrote in a prefatory message that the Service was beginning in 2020 to prepare its first mandated report to Congress describing its implementation of the many reforms enacted by the 2019 Taxpayer First Act, P.L. 116-25, when "we found ourselves in uncharted waters during the COVID-19 pandemic," which "presented some of the greatest challenges to the IRS in its history."

People

The new plan reflects how the Service has contended with those challenges and intends to meet new benchmarks but also remedy more systemic, chronic problems. Prominent among the latter is a workforce with a large number of impending retirements and higher attrition rates than the federal government as a whole.

While the IRS's primary goal under the plan's "people" heading is to "foster an inclusive, diverse and well-equipped workforce and strengthen relationships with our external partners," the plan notes that its workforce is aging. An estimated 63%, 52,000 of its 83,000 employees, will be eligible to retire or likely to resign in the next six years. The Service's average attrition rate is 7.3%, against a rate for all federal agencies of 5.8%.

A priority going forward, therefore, will be to "expand strategic hiring efforts and utilize workforce planning" while streamlining its hiring and onboarding process. The IRS also intends to work to retain its existing employees and improve succession planning.

Transformation

A primary goal of transforming itself will be for the IRS to become more resilient, agile, and responsive to taxpayers and to improve their experience while also narrowing the tax gap, the aggregate amount of revenue owed but uncollected. Challenges include beefing up cybersecurity to protect taxpayers' personal data.

Keeping pace with a changing world entails providing the same types of services taxpayers have come to expect from banks and businesses, largely digital ones. The Service noted that while the total number of its own digital interactions with taxpayers has increased from 384 million in fiscal 2016 to 1.44 billion in fiscal 2021, the average cost per interaction has fallen from 20 cents to 13 cents. These costs, moreover, are much lower than for dealings through traditional channels, such as by phone or in person.

The Service intends in the next five years to further increase its digital channels' capacity and capability and to reduce its reliance on paper-based correspondence and forms, as part of its "digitalization strategy" and "modernization portfolio." At the same time, it says it will use data to make smarter decisions regarding ways to encourage and enforce taxpayers' compliance.

Enforcement

Also under the rubric of adapting to a changing world comes a keener understanding of evolving means and methods of illegal tax avoidance. For example, the IRS said, it will update tax guidance regarding such relatively novel forms of investment as cryptoassets and income-producing activities as the gig economy. It will also invest in new ways to analyze trends in these areas.

However, the Service's enforcement resources have fallen over the years, the plan stated. Despite that, the IRS's Criminal Investigation Division (CID) has a nearly 90% conviction rate, the plan stated. CID spends most of its direct investigative time, 72%, on tax-related fraud, crimes, and abuse. It spends another 11.2% of its time investigating narcotics cases and another 15.4% on other non–tax-related crimes, such as general fraud and money laundering.

"The IRS is increasing focus on non-compliant, high-income and high-wealth taxpayers, business partnerships and large corporations that make up a disproportionate share of unpaid taxes," the plan stated, adding that its enforcement process will be fair and impartial.

Service

Besides its shrinking workforce, the IRS must also navigate "hiring difficulties" and insufficient funding, the plan acknowledged. Nonetheless, it will develop and increase the availability of easy-to-use services and products for all communities.

Along those lines, the plan noted that more than 20% of U.S. residents report speaking a language other than English at home. The Service intends to further increase availability and breadth of its limited-English-proficiency offerings and interactions. It noted that it already provides phone interpreter services in more than 350 languages and allows taxpayers to indicate with their Form 1040, U.S. Individual Income Tax Return, their preference for written communications in any of, currently, 20 languages other than English (by including Schedule LEP, Request for Change in Language Preference).

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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