IRS seeks transformation in a new 5-year plan

Improving the taxpayer experience while surmounting operational
difficulties that include a shrinking workforce are among the 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.”

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 crypto assets 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 the 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).

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