A Huge IRS Overhaul Could Make Filing Your Taxes Much Easier
You might be focused on frantically finishing this year's taxes before the April 18 deadline, but the IRS itself is looking to the future.
The agency released Thursday its long-awaited Strategic Operating Plan, a roadmap for how it intends to spend $80 billion in funding provided by the 2022 Inflation Reduction Act. The 150-page document outlines several major changes to a system that's notoriously outdated and hard to navigate. They're largely aimed at providing better service to taxpayers, increasing enforcement and reducing the deficit.
The upgrades won't happen immediately — the $80 billion is set to be delivered over the course of a decade, so the improvement projects are divided into stages. The plan is also light on details, which means the IRS is likely to continue getting questions from skeptical lawmakers about how, exactly, it's planning to put the cash to use. But it does give Americans an idea of the direction the agency is heading.
Here are some of the biggest changes the IRS is eyeing and how they could affect you.
The IRS could identify tax return errors before you file
A popular meme pokes fun at the IRS's opaque filing system by imagining a conversation in which the agency tells a taxpayer to "guess" how much they owe. The taxpayer inevitably guesses wrong, and the IRS replies, "no 🙁 jail."
People generally don't go to jail for unpaid taxes, but the gist of the joke is true: Most taxpayers only find out about errors on their returns after they've been filed. In fact, in 2021, the IRS says it had to send roughly 13 million math error notices.
"Current IRS compliance processes are frequently initiated well after the time of filing," Thursday's report read. "Several years may go by after filing before the IRS contacts a taxpayer about an issue."
The IRS is hoping to change that by offering both notifications and proactive tips that'll help taxpayers find — and correct — mistakes earlier in the process. Providing better, clearer data to people and tax preparers could help cut down on unintentional omissions.
In the future, it says, you could submit a return online and get a "real-time alert that shows easy-to-fix errors" with instructions on how to correct them before resubmitting.
The IRS could help you claim more tax credits and deductions
It's common for Americans miss out on claiming tax credits and deductions that reduce their tax bill and taxable income every year. While these might not technically qualify as mistakes, nobody likes to pass up free money.
The IRS report points out that other countries use taxpayer data to tell people about these sorts of incentives, especially when they involve life changes. In Canada, for instance, parents who register the birth of a child at a hospital can automatically get a monthly payment via the Canada Child Benefit.
The IRS plan lays out a future in which a taxpayer signs up for an account at IRS.gov and "they later receive an email explaining tax credits and deductions for which they may be eligible," following a similar process as the above error resolution.
It also wants to remove barriers that may prevent someone who qualifies for an incentive from claiming it and develop a "credits and deductions" search tool on the IRS website. In addition, it plans to work with local governments, libraries, nonprofits and tax-help volunteers to help educate people about incentives — especially in underserved areas.
"We will use available data to create clear, informative and personalized alerts that help taxpayers understand their obligations and the credits and deductions they may be eligible to claim," the plan reads.
The IRS could send you notifications about your taxes
Right now, the IRS will not text you, email you or DM you on social media (if you get one of these messages, it's a scam). In fact, the IRS rarely even makes phone calls — it's very much a mail-based operation.
But in its plan, the IRS lays out its hopes of communicating more often with taxpayers. Those who opt in to personalized alerts could receive simple notifications to, say, update them on their refund status, point out problems with their return or explain how life changes will impact their taxes.
The IRS isn't going to randomly start blowing up your phone — it insists that "taxpayers will be able to choose what types of information they receive, how often and through what channels," which may include in-app notifications, messages or emails. The agency wants to tailor these alerts to your individual needs. It also promises to be safe about it, incorporating security and authentication so as to protect your privacy.
The idea is that, by sharing tax updates as soon as they're available, the IRS will eliminate the need for taxpayers to constantly check online tools in hopes of getting new information (looking at you, tax-transcript obsessives).
The IRS could make paying past-due tax balances easier
The IRS says that 10 million taxpayers have past-due taxes. While it's up to them to figure out a way to settle up with Uncle Sam, these people are also prone to falling through the cracks. If you're experiencing hardship, for example, it might be difficult — and expensive — to figure out how to set up an installment agreement or offer in compromise.
The new plan vows to simplify these arrangements by using analytics to figure out the best repayment solution for each individual taxpayer.
In some cases, this will involve reaching out to those affected and offering them options like short-term payment plans or a temporary collection delay. In others, it will come in the form of an alert that tells a person how to enroll in balance resolution.
"This outreach will be timely; we will contact taxpayers as soon as payments are missed so that they can address their past-due balance as quickly as possible to reduce the accumulation of interest," the report reads.
The IRS may proactively contact people to tell them about the consequences of running up a big tax bill. It also intends to evaluate its options for lowering the fees associated with entering into IRS agreements to pay their past-due balances.
The IRS could crack down on wealthy taxpayers
Perhaps the largest point of contention between the Biden administration and critics wary of the $80 billion infusion has to do with audits. Several Republican lawmakers have raised concerns that increased IRS funding will lead to more hiring and result in more audits on everyday people.
The White House has sworn this is not the case, and the IRS report flatly says that "small businesses and households earning $400,000 or less will not see audit rates increase relative to historical levels." But it does outline a plan to focus on "taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals."
The IRS says that, with more resources, it can increase compliance, enforcement and risk assessment. Specifically, it plans to hire accountants, attorneys and data scientists needed that can track down high-income taxpayers and big corporations that aren't paying what they owe (or are avoiding taxes entirely).
It also wants to prioritize fairness in enforcement, using tech upgrades, data and research to "help us enforce the tax laws as they apply to all taxpayers and curtail any potential disparities in tax administration."
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