The US Internal Revenue Service (IRS) released IR-2024-223 on Friday, 23 August 2024, publishing its Inflation Reduction Act two-year report card.

The IRS has made significant progress on a range of improvements, including that all taxpayers can do all of their interactions with the IRS digitally if they choose, making it possible for the IRS to uncover and address tax evasion shrouded in complexity that requires subject matter expertise and data science.

“Two years into the historic work made possible by the Inflation Reduction Act, the IRS has made significant progress in the 10-year journey to improve taxpayer service, upgrade technology and ensure more fairness in compliance efforts. If the IRS continues on this trajectory, we will meet a generational imperative on several fronts,” said IRS Commissioner Danny Werfel. “This work will enable all taxpayers to complete all interactions with the IRS digitally if they choose. The IRS will be better equipped to disrupt tax scams and provide immediate and comprehensive victim support when scams occur.” 

The customer callback option expanded to further improve phone service and is now available for up to 97% of callers seeking live assistance. Through the end of July, the IRS has offered callback options to more than 11 million taxpayers this tax season, saving taxpayers 3.3 million hours of wait time on the phone.

Expanded in-person service to reach rural, underserved taxpayers

• The IRS has improved service at Taxpayer Assistance Centers (TACs) across the country, and in 2024 the IRS added extended hours at 242 TAC locations across the nation, generating more than 11,000 extra service hours for taxpayers during the 2024 filing season. In addition to extended service hours, the IRS also offered taxpayer assistance on Saturdays in more than 70 locations. These evening and Saturday hours made it more convenient for thousands of hard-working taxpayers to get help. During the filing season, IRS TACs had a 37% increase in face-to-face contacts, with the IRS working with nearly 1.3 million taxpayers for this calendar year through 13 July 2024.
• During the 2024 filing season, selected Volunteer Income Tax Assistance sites offered free tax return preparation assistance to taxpayers who participated in the “gig” or small business economies and increased the number of returns prepared by Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites by 200,000.
• The IRS began implementation of a new tool and improved workforce management processes for the call center operations that will create a more efficient future state based on improved call volume forecasting and dynamic scheduling that will be in place during calendar years 2025–2026.

Progress in scanning, electronic filing to eliminate paper, speed refunds

• The IRS built the capability for taxpayers to digitally submit online all correspondence and responses to notices and letters that do not have a filing or payment action via the Document Upload Tool. As a result, the IRS estimates more than 94% of individual taxpayers will no longer have to send mail to the IRS, potentially replacing up to 125 million paper documents per year. For anyone with a smartphone or computer, this means that replying to IRS notices is now often as easy as scanning required documents and uploading them to the tax agency. In June, the Document Upload Tool accepted its one millionth taxpayer submission.
• The IRS continues to make significant progress scanning and electronically filing paper returns. The IRS has replaced scanning equipment that is older than five years and installed automated mail-sorter machines in the six highest-volume IRS locations, streamlining the process of mail sorting, opening and scanning. As of the end of June, the IRS had scanned more than 11.8 million pieces of paper. Digitisation has far-reaching implications for how the IRS can improve service and will enable the IRS to create completely digital workflows.
• The IRS has made an additional 23 forms eligible for electronic filing.
• The IRS is also enabling taxpayers to submit forms on their mobile devices. The IRS now has a total of 30 forms available for mobile use, allowing taxpayers to fill out common non-tax forms on cell phones and tablet devices and then submit them to the IRS digitally. This is an important milestone toward our goal of meeting taxpayers where they are. An estimated 15% of Americans rely solely on mobile phones for their Internet access – they do not have broadband at home – so it is important to make forms available in mobile-friendly formats.

Helping taxpayers understand and claim appropriate credits and deductions

• In November 2023, the IRS sent over 1.8 million reminder letters to individuals who received the advanced Child Tax Credit but did not file a 2021 return and could be eligible to claim the other 50% of the expanded Child Tax Credit.
• In January 2024, IRS launched a new annual Tax Professional Awareness initiative to educate tax professionals on refundable credit eligibility requirements and inform them of their due diligence requirements to help taxpayers receive credits.
• The IRS also began a data sharing program with states that enables states to inform potentially eligible taxpayers about the Earned Income Tax Credit.
• The IRS is estimating for the first time the credits gap for the Child Tax Credit, the Premium Tax Credit and others. Previously, the IRS has focused exclusively on the Earned Income Tax Credit gap.

Simplifying notices and letters sent annually to taxpayers

The IRS announced the Simple Notice Initiative in January 2024 for redesigning IRS notices so taxpayers can easily understand why we are contacting them and take action as needed. We are also working to make notices available to taxpayers online and offer a seamless way to digitally respond back to the IRS. Making notices available digitally will also help address scams by enabling taxpayers to verify that a notice they receive in the mail is from the IRS.

• The IRS has reviewed and redesigned 31 notices for the 2024 tax season that include notices to taxpayers who may be eligible for tax deferment, including those who served in combat zones, notices reminding a taxpayer they may have unfiled returns, and notices reminding a taxpayer about their balance due and where they can go for assistance.
• The IRS are redesigning up to 200 notices for Filing Season 2025 and have completed 109 as of July 25, 2024.
• The IRS enabled the ability for individual taxpayers to receive/view digital copies of over 170 different notice types and are working on making approximately 268 digital notices available by the end of the calendar year.

Dramatically improved service in filing season 2024

Through Inflation Reduction Act funding, the IRS continued to expand taxpayer service levels not seen in more than a decade with double-digit gains occurring in critical areas. The IRS level of service on its main phone lines reached more than 88% during the 2024 filing season. That’s above the 87% level seen last year and more than a five-fold increase from the phone service levels seen during the pandemic era period, when the level of service was at just 15% in 2022.

Disrupting scams

More than USD 1 billion was protected by IRS efforts to disrupt scammers targeting the Employee Retention Credit (ERC).

• In September 2023, the IRS announced a moratorium on processing new Employee Retention Credit (ERC) claims through at least the end of 2023. The IRS conducted enhanced compliance reviews of existing claims submitted before the moratorium to protect against fraud and also to protect businesses and organisations from facing penalties or interest payments stemming from bad claims advertised by promoters.
• The IRS also offered a withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that were withdrawn were treated as if they were never filed, and the IRS did not impose penalties or interest.
• The IRS has also partnered with the Department of Veterans Affairs to support the disruption of tax scams and schemes that specifically target US military veterans.
• On 16 April 2024, the IRS sent 32 tax preparers L5175, Return Preparer Office Complaints Referrals, Education and Warning letter to remind preparers suspected of engaging in scamming taxpayers of their responsibilities to prepare accurate tax returns. Responses are being monitored. The IRS is issuing the letters to make preparers aware that inaccurate returns may adversely affect them and their client, and to deter engaging in this type of behaviour.
• On 16 August 2024, IRS announced the formation of the Coalition Against Scam and Scheme Threats, representing IRS, state tax agencies and a broad spectrum of the nation’s tax industry. The coalition will work to expand outreach and education about emerging scams, develop new approaches to identify potentially fraudulent returns at the point of filing and create infrastructure improvements to protect taxpayers as well as federal, state and industry tax systems.

Ensuring individuals and businesses using complex arrangements pay taxes owed

The IRS is working to ensure high-income filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of devices that aggressive taxpayers use to hide their income and evade paying their share. The IRS is now taking swift and aggressive action to close this gap.

• The IRS ramped up efforts to pursue high-income, high-wealth individuals who failed to pay a tax bill. These high-end collection cases are concentrated among taxpayers with more than USD 1 million in income and more than USD 250,000 in recognized tax debt. Out of a total of 1,600 of these cases, the IRS has assigned 1,500 to revenue officers, with over USD 1 billion collected so far.
• The IRS announced a new effort focused on high-income individuals who have failed to file federal income tax returns in more than 125,000 instances since 2017. Non-filers receive IRS compliance letters alerting them that the IRS is aware of their missing return and encouraging them to file or contact the IRS. The new initiative involves more than 25,000 people with more than $1 million in income, and over 100,000 people with incomes between USD 400,000 and USD 1 million between tax years 2017 and 2021.
• Other elements of the agency’s renewed compliance focus include:
  • Abusive use of partnerships. Last month, the IRS announced a new series of steps to combat abusive partnership transactions that allow aggressive taxpayers to avoid paying what they owe.
  • Activities involving large corporations and partnerships. These efforts include opening examinations of 76 of the largest partnerships in the U.S., representing a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. Other activities include expanding the large corporate compliance (LCC) programme.
  • Aircraft use. In February, the IRS announced plans to begin dozens of audits involving personal use of business aircraft. The audits are focused on aircraft usage by large corporations, large partnerships and high-income taxpayers. The IRS is examining whether the use of jets is being properly allocated between business and personal use.

Delivering cutting-edge technology, data and analytics to operate more effectively

None of the improvements referenced would be possible without investing in the IRS’ underlying technology infrastructure and data analytics. Thanks to IRA investments, the IRS is deploying new technology to benefit taxpayers and making significant progress on modernising the IRS’ foundational legacy IT systems. In addition to the items mentioned above, the IRS has enabled bulk filings of Forms 1099, replaced decades-old mail sorting machines, and scanned millions of paper forms.