Effort to revive the IRS fight despite a billion-dollar injection

A multibillion-dollar federal effort to modernize the Internal Revenue Service has not yet resolved the agency’s struggles to answer customer calls, improve identity theft or process amended tax returns, the agency’s watchdog wrote in a report Wednesday to Congress.

The annual report from the Office of the National Taxpayer Advocate comes as the agency faces a sharp cut in new funding intended to solve long-standing problems, including tax filing backlogs and lackluster customer service.

A spending deal in Congress to fund the federal government would claw back about $20 billion of the $80 billion the IRS received from the Inflation Reduction Act of 2022. Republican lawmakers are eager to withdraw even more money from the agency, even as efforts focusing its energies on improving customer service and responding to taxpayers.

Despite the ongoing challenges, National Taxpayer Erin M. Collins commended the IRS for clearing most of the backlog of unprocessed tax returns and improving its responsiveness.

“Overall, the scale of successes exceeded weaknesses in 2023, with most figures showing significant improvement from the depths of the pandemic,” Ms Collins said in a statement.

The report, which outlines 10 areas where the IRS needs to improve, described the effort to be more accessible as a “marathon” and said the agency had not been as successful on that front as its officials had suggested.

Although the IRS had said that telephone wait times had dropped and that it answered 85 percent of calls during the 2023 tax filing season, the report said those numbers were misleading. The watchdog said the IRS metric for “service level” excluded many of the calls to the agency and that it had answered only 29 percent of the calls it received for the full fiscal year 2023.

The report also pointed to problems in how the IRS deploys its staff, saying it was not done efficiently. Customer service representatives were often working when call volume was low. As a result, officers were often “simply waiting for the phone to ring,” despite callers regularly being unable to reach anyone during busy periods, the report said.

“The IRS cannot easily switch employees back and forth between answering phones and processing correspondence, so unproductive employee time was the price it had to pay to improve phone service levels,” Ms. Collins said.

The challenges could be more difficult to address if Republicans succeed in further defunding the agency.

The Biden administration has argued that a robust tax collection agency is crucial to reducing the “tax gap,” or government revenues that go uncollected. The Treasury Department estimates that deficit at more than $600 billion a year and has warned that starving the IRS of resources will harm taxpayers.

“I wouldn’t want to jeopardize these efforts,” Treasury Secretary Janet L. Yellen told reporters Monday, referring to the agency’s modernization plans, but she expressed optimism that even if some of the funds were taken away, the effort to renew the IRS are still continuing.

“In the near term, and certainly in the medium term,” she said, “the IRS could continue its important work in modernizing our tax system.”