IRS cuts phone waits, promises better service and crackdown on evaders

The IRS has released more details about what changes are ahead as the agency spends its giant $80 billion boost over 10 years. And once again, IRS officials made a point to reassure most taxpayers that audits won't be going up for those making less than $400,000.

"People who get W-2s or Social Security payments or have a small business should not be worried about a sudden new wave of IRS audits," said IRS Commissioner Danny Werfel in a news media briefing call Thursday.

"We're taking that off the table. Our focus will be on other high dollar areas for quite some time because there's a lot of work to do in those more complex areas of tax law that will take years to accomplish."

The IRS, of course, is walking a fine line here with its message. No one who makes $50,000 a year and pays their fair share wants someone who makes $350,000 to get away with cheating on their taxes.

IRS officials, though, maintain that many people with straightforward paperwork, like W-2s that report wage income and SSA-1099s that report the amount of Social Security benefits received in a year, already do the right thing and pay the taxes they owe. The paper trail keeps much of the tax system on track.

More: Tax refunds are smaller this year: How to track, what it means for economy

Sure, some people try to game everything. IRS officials acknowledged that there now is a potential that someone who made $5 million in earlier years could suddenly report in the future that they're making $399,000 to dramatically change their probability of being audited.

But the IRS said it will be vigilant in trying to spot individuals or corporations who are masquerading as middle income taxpayers when they're really not. While it's possible to have a substantially lower income in another year, the IRS said, a second look might be taken to make sure that's really the case.

IRS Commissioner Danny Werfel outlined a strategic operating plan for spending an influx of $80 billion over 10 years to improve service, modernize technology and compliance of high wealth individuals and corporations.IRS Commissioner Danny Werfel outlined a strategic operating plan for spending an influx of $80 billion over 10 years to improve service, modernize technology and compliance of high wealth individuals and corporations.
IRS Commissioner Danny Werfel outlined a strategic operating plan for spending an influx of $80 billion over 10 years to improve service, modernize technology and compliance of high wealth individuals and corporations.

The vast majority of businesses and workers play by the rules, according to Treasury Secretary Janet Yellen. Even so, wealthy individuals, large corporations and big partnerships have more complex avenues to try to hide income and evade paying taxes. The IRS and Yellen refer to an estimate that states that $160 billion a year is lost in tax revenue as the top 1% avoid paying what they owe.

The objective, Werfel said Thursday, is to hire more accountants, attorneys, engineers and data scientists to pursue high income and high wealth individuals, complex partnerships and large corporations that are not paying the taxes they owe.

"We have years of work ahead of us where we will be 100% focused on building capacity for higher-income individuals and corporations. During this time, the audit rate for average taxpayers will not increase, and as a result, we will not come close to hitting or exceeding any historic average rate."

Deputy Secretary of the Treasury Wally Adeyemo said it takes up to 50 times longer for top talent to audit wealthy individuals than to complete a simple audit — or up to 250 hours rather than five hours on average.

Corporate audits average hundreds of hours over two years to four years.

The IRS blamed understaffing as the reason audits of wealthy people and large corporations plummeted over the last decade. The IRS said it needs experienced, top talent to do the complex work involved with such audits.

Due to a lack of resources and loss of top talent, the IRS said, audit rates for millionaires fell by 77%, audit rates for large corporations fell by 44% and audit rates for partnerships fell by 80% between 2010 and 2017, the latest data available.

The Inflation Reduction Act of 2022 increases the IRS budget after years of neglect. The IRS said it experienced a budget reduction of 22% after taking inflation into account from 2010 to 2021 — which contributed to outdated technology and a shrinking workforce.

Earlier, the IRS gave a breakdown indicating how much would be spent on help answering the phone ($3.1 billion), new technology ($4.8 billion), operations ($25.3 billion) and enforcement and audits ($45.6 billion).

Taxpayers are warned that their income tax refund could be smaller this year after many stimulus tax breaks ended. FILE - A sign outside the Internal Revenue Service building in Washington, on May 4, 2021. (AP Photo/Patrick Semansky, File)
Taxpayers are warned that their income tax refund could be smaller this year after many stimulus tax breaks ended. FILE - A sign outside the Internal Revenue Service building in Washington, on May 4, 2021. (AP Photo/Patrick Semansky, File)

Here's a look at what the IRS discussed Thursday as part of its plans:

More help for taxpayers: The IRS wants to put in place a system that would for the first time actually help taxpayers identify potential mistakes before filing. Such errors when not corrected end up delaying refunds. One day, when the taxpayer submits a return online, the taxpayer could get a real-time alert that shows easy-to-fix errors. The taxpayer would correct the errors and re-submit the return. No delay on that refund.

The IRS wants to help individuals more easily claim money from the credits and deductions they are eligible to receive.

Modernize systems: In the first five years of the 10-year plan, the IRS said, taxpayers will be able to securely file all documents and respond to all notices online. They'd also be able to securely access and download their data and account history.

Also, in the first five years, the IRS plans to eliminate paper backlogs that have delayed taxpayer refunds by digitizing forms and returns when they are received. The goal is to move to a fully digital correspondence processes.

Enable taxpayers to stay on track: The IRS report issued Thursday noted that more than than 10 million taxpayers have past-due balances. The upcoming changes include making it simpler to target repayment options and make payments. One project calls for the IRS to develop analytics to identify the repayment options best suited to each taxpayer's circumstances. For example, the IRS said, it would proactively offer short-term payment plans or installment agreements to eligible taxpayers.

More: 2023 tax season shows some hope as IRS answers calls, refunds roll out on time

More: IRS is trying to eliminate paper tax return backlog with digital scanning

More: IRS in Detroit to offer taxpayers help without an appointment: 4 days you can walk in

More: How do rich people avoid taxes? Wealthy Americans skirt $160 billion a year in tax payment

The IRS Strategic Operation Plan released Thursday took time to note improvements that the agency already put in place during the past year.

Hiring: More than 5,000 new customer service representatives have already been hired to process correspondence and answer the phone. The IRS is beginning efforts to hire about 650 new employees to work in its Taxpayer Assistance Centers across the country.

Phone Service: Last year, IRS phone service was miserable. The IRS answered about 17% of the calls in 2022. Millions couldn't get any help. This filing season, the IRS said, the agency has consistently been able to provide an 80% to 90% level of phone service. A million more calls have been answered by IRS customer service representatives through live assistance this filing season compared with last filing season. Call wait times are down to around four minutes — a shockingly low wait compared with last year's wait times. The National Taxpayer Advocate's midyear report to Congress last June indicated that the IRS answered 7.5 million of 73 million calls and the time on hold averaged 29 minutes through April 23, 2022.

Paper backlog: Reducing the inventory of original individual returns. Some 4.7 million returns waited to be processed in January 2022. By this January, the IRS said, the inventory backlog was once again at pre-pandemic levels between 400,000 and 1 million paper returns. More paper will be reduced, as the IRS scans and digitizes millions of business and individual paper returns in 2023.

Direct deposit: This year, the IRS began enabling direct-deposit refunds for 1040-X or amended returns in February 2023. Previously, these refunds were solely issued as paper checks.

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer.

This article originally appeared on Detroit Free Press: IRS wants to audit more wealthy individuals, large corporations

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