April 6, 2023 This is a historic day for the IRS. The release of the Strategic Operating Plan marks a milestone for the IRS and the nation. This ambitious effort will transform the tax agency and dramatically improve service to taxpayers and the nation during the next decade. The plan released today is a bold look at what the future can look like for taxpayers and the IRS. Now that we have long-term funding, the IRS has an opportunity to transform our operations and provide the service that people deserve. We are already making progress in a number of areas, and more is on the way. For more than a decade, the IRS has struggled to keep pace with a rapidly changing world, a growing population of filers, an expanding economy, and an increasingly complex set of tax laws. During this period of change, IRS funding has steadily declined, causing suboptimal staffing, investment, and a degradation in the various functions required to effectively run the U.S. federal tax system. In 2010, for example, we operated with just over 95,000 full-time employees to meet the demands of a population of 310 million people. Today, the IRS is almost 20 percent smaller with about 80,000 full-time employees at the end of FY 2022. But while the IRS shrank, the U.S. population grew by more than 7 percent, reaching 334 million people. At the same time, the IRS was required to implement a series of major tax law changes. For the last several years, these sharply reduced staffing levels prevented the IRS from providing the level of service taxpayers deserve – in every aspect of our operations. With long-term funding in place, the plan released today shows how we can both get back to our historical baseline of service but also transform our operations and move towards a world-class customer service operation where new tools are regularly provided for taxpayers in increasingly innovative ways to help them file their taxes – a process we all know can be complicated and stressful. The plan outlines 42 specific initiatives designed to achieve IRS goals. In all, the plan covers more than 190 key projects with over 200 specific milestones. A plan at this level of detail is necessary to effectively organize a change effort of this scale. So I'd like to spend a few moments breaking this down in terms of what the bottom line is for taxpayers – in terms of customer service, compliance efforts, and updating our technology. Customer Service The Deputy Secretary touched on a number of areas where we will make changes. One of those is phone service. Last year during tax season, our phone service was simply not acceptable. We answered about 17 percent of the calls coming into the IRS during FY 2022. Millions of people could not get the help they needed as they tried meeting their tax obligations. With long-term funding in place, we have hired more than 5,000 phone assistors. This additional staffing made an immediate difference. This filing season, the IRS has consistently been able to provide an 80-90% level of phone service and answer 1 million more calls through live assistance than last filing season. Here's another important point: Call wait times for taxpayers are down, on average about 4 minutes – a far cry from the average wait time of 27 minutes at this point last year. And many of you would agree that's faster than many private-sector call centers. That's not all. More walk-in services are now available across the country. New digital tools have been added. But we also envision additional changes that can be made to serve taxpayers and the nation. This plan represents that thinking. Here are just a few examples of what this will mean for taxpayers, both in the short term and the long term: More digital scanning to speed up the processing of paper returns we receive. This will reduce errors and speed refunds for paper filers. We're already making incredible progress this year with more than 400,000 forms already scanned, and we will do even more next filing season. The IRS is working to expand in-person help and fully staff all Taxpayer Assistance Centers (TACs) nationwide by next year. In the first five years of the 10-year plan, taxpayers will be able to securely file documents and respond to notices online and securely access and download their data and account history. For the expanded Online Account, taxpayers and tax professionals will have a clearer view of their tax information and easier ways to address issues with their tax return. For example, taxpayers will be able to respond to IRS issues instantly by electronic means - avoiding weeks of mailings and paper processing. For many, letters from the IRS in the mail could be a thing of the past. For the first time, the IRS will help taxpayers identify potential mistakes before filing, quickly fix errors that could delay their refunds, and more easily claim credits and deductions they may be eligible for. In addition, we will be updating transcripts, notices and forms to be more user-friendly and available in more languages based on taxpayers' needs. The IRS will update taxpayer status tracking tools to provide real-time updates on taxpayer refund and return processing, audits and other service interactions in the next 5 years. Many more service improvements are detailed in the plan. Enforcement The long-term reduction in staffing and resources at the IRS also sharply diminished our ability to maintain sufficient audit coverage of entities and individuals contributing significantly to the tax gap. Since 2010 enforcement personnel declined 30 percent, while the economy grew by more than 30 percent and filings grew by 14 percent. This means our work on resource-intense areas – particularly wealthy individuals, large corporations and big partnerships – suffered. We had fewer auditors to review these complex areas. Consider what's happened with our audit work on our largest taxpayer cases, where we now have about 2,600 revenue agents who work directly on these. The number of those auditors is down nearly half from nearly 5,000 in 2010. Meanwhile, large corporate, large partnership and high-income individual filings that these auditors cover have all grown exponentially: The number of individuals making more than $10 million increased to more than 30,600 – up from 13,300 a decade earlier. The number of large partnerships and S-Corp partnership filings has grown as well, jumping to 300,000 from about 175,000. Large corporate filings also jumped by a third to 60,000 during this period of shrinking resources. Funding from the Inflation Reduction Act changes that. It gives us the resources so we can perform critical compliance work – helping ensure fairness across income categories. I want to emphasize that our priority will be focusing on areas where compliance has eroded the most. That means we will be focusing first on enforcement at the top, involving complex tax returns for wealthy individuals, large corporations and big partnerships. What this means is that we will be working to put our work in line with historical norms. Here's what this means over the next number of years as we move to implement the Strategic Operating Plan: The agency is focused on assessing tax compliance of high-income and high-wealth individuals, complex partnerships and large corporations. The IRS has no plans to increase the audit rate for households making less than $400,000. In implementing the enforcement initiatives contained in the plan, we will focus the IRA enforcement resources on hiring the accountants, attorneys, engineers, economists and data scientists needed to pursue high-income and high-wealth individuals, complex partnerships, and large corporations that are not paying the taxes they owe. Given the increase in filing populations over time, the complex nature of the tax filings and the IRS' inability to keep pace due to lack of resources, it makes sense to focus our initial Inflation Reduction Act implementation efforts exclusively on increasing our capacity to assess compliance of high-income and high-wealth individuals, complex partnerships, and large corporations. Let me be clear: Yes, the Secretary's directive references holding our audit coverage below historic rates for those earning under $400,000, but 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 be increasing and, as a result, we will not come close to hitting or exceeding any historic average rate. People who get W-2s or Social Security payments or have a small business should not be worrying about some new wave of IRS audits. 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. Technology Underpinning everything in the plan is technology. The IRS has a patchwork of systems that use decades-old code and case management systems that don't interact with each other. To improve taxpayer service and compliance work, we must take steps to modernize the agency's technology infrastructure. One area that's important is improving data security. There have been so many rapid changes involving data in recent years that the IRS must play catch up. Taxpayer data is being held in old technology at the IRS. We need to invest in newer, modern technology to keep information safe for taxpayers, businesses and others. With long-term funding, the IRS can address this. At the same time, a better technological foundation helps the IRS in many areas, providing new tools to taxpayers, improving the work of our call centers and also helping increase use of data analytics that's crucial to compliance work – not only to identify tax evasion but also to avoid bothering honest taxpayers with a needless audit. The plan contains this and much more. But the work on this is not done. In the years ahead, the plan will evolve as we receive more input and see the impact of our improvements. And as we make changes, we will see new issues and opportunities arise as the nation's economy and tax law needs adjust. We will continue to adapt to those as the agency transforms. There are still many specific details the agency is working through on this plan. I am also working to fully understand the details of the plan and the IRS overall, now that I'm in the fourth week on the job. I was not here to write the plan, but my job will be to implement it. This is an exciting time to be working at the IRS. Our employees are excited by the prospect of having the proper tools and resources to do their jobs helping taxpayers and the nation. IRS employees – including me – cannot wait to show how the actions under this plan will translate into real improvements for taxpayers. This investment in the IRS is already helping taxpayers this tax season, and this plan shows that historic changes are coming. It is an exciting road ahead for the tax system and the nation's taxpayers.
