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Transforming the IRS into a modern organization ready to serve the American people

Building new economic opportunities for all Americans requires a modern Internal Revenue Service (IRS).  Prior to the Inflation Reduction Act (IRA), the IRS was significantly underfunded, with a budget reduction of 18 percent in real terms from 2010 to 2021. The IRA provides the IRS with tens of billions of dollars over a decade to improve the way the IRS serves taxpayers, ensure fair enforcement of tax law, modernize its technology, and collect hundreds of billions of dollars to fund our country’s vital activities. 

The IRA investment gives the IRS the opportunity to meet the evolving needs of taxpayers – whether through new digital services and platforms, shorter call hold times, or the many other improved interactions with IRS now underway. Among the most significant opportunities have been the improvements to IRS technology, allowing the expansion of online services; the increased assistance for eligible taxpayers to claim credits and deductions, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit; and improved communication with taxpayers through concise and simple notifications. The IRS first described its plan in the Inflation Reduction Act Strategic Operating Plan (SOP), published April 2023. One year on, IRS has many achievements to share and the future appears bright. 

Modernizing IT systems and expanding online services

Transforming the IRS into a modern twenty-first century enterprise requires interactions with individual and business taxpayers to take place online in the same way and with the same level of ease that they interact with their banks and other financial institutions. Exemplifying this, the IRS launched its Direct File pilot in Filing Season 2024, which allowed individuals in 12 states to file their taxes directly with the IRS. The Direct File pilot received overwhelmingly positive reviews like Marina Garcia’s who said, “If it sticks around for the rest of my working life, I am doing business directly with the IRS. I don't have to go to a third party. I don't have to pay. It's straightforward. It's easy-peasy.”[1]

Additionally, individuals can now track their refunds using the improved Where’s My Refund? Tool. And in the business arena, eligible businesses are now registering for clean energy credit mechanisms like the IRS Energy Credits Online (IRS ECO), which more than 12,500 clean vehicle dealers have used.

Ensuring Eligible Taxpayers Receive their Credits and Deductions

Another critical function of the IRS is delivering incentives and benefits through tax credits and deductions to individuals and small businesses. Historically, a large number of eligible taxpayers have not always claimed credits or deductions to which they are entitled because they were not aware of the credit, or eligibility, or other barriers.  In 2020 approximately 5.4 million eligible taxpayers did not claim their EITC, $7.6 billion in unclaimed credits. The IRS will make it simpler and easier for eligible taxpayers to claim credits like the EITC and Child Tax Credit through proactive outreach and various modes of communication, meeting taxpayers where they are.

Simplifying How the IRS Contacts Taxpayers

Meeting taxpayers where they are means improving how the IRS communicates with taxpayers. Through IRA funding and as laid out in the updated SOP priority efforts, the IRS has been shifting to resolve taxpayer issues through simpler and more understandable notifications that are increasingly delivered online as well as through the mail. In the first year of the SOP, the IRS has redesigned nearly 40 of its high-volume notices and plans to expand to capture 90 percent of all notice volume for individual taxpayers, using simpler language and design.

It is fair to say—if taxpayers set up an online account first, they will be able to get copies of most notices and letters online in 2025. All part of the longer-term vision to help taxpayers meet all their responsibilities in a digital manner if they choose.

Through continued investment in the IRS through the IRA, Americans will have a fairer tax system and see better service when they interact with the IRS, in the manner they expect—and the level they deserve.