IRS requires sustained funding to continue to help taxpayers, report says

The IRS provides an enormous return on investment for taxpayers and requires sustained funding to continue to improve, the national taxpayer advocate (NTA) said Wednesday in her annual report to Congress.

For example, revenue collected by the IRS, which provides 96% of government funding, totaled $5.1 trillion in fiscal year 2024 on an appropriated budget of $12.3 billion. That return on investment, 415:1, was described by NTA Erin Collins as “remarkable.”

“Paradoxically, the tighter the rest of the federal budget becomes, the more important it is to fully fund the IRS so it can collect the taxes required to fund other government functions,” Collins noted in the preface to the full report, her first for the new Congress.

Collins highlighted the difference between the money allocated for enforcement in the Inflation Reduction Act (IRA) of 2022, P.L. 117-169, and other IRA areas. While 58% of the original $79 billion (over 10 years) was allocated for enforcement, just 6% went toward technology modernization and 4% to taxpayer services. The remaining 32% was allocated for operations support.

“I want to highlight this distinction so that if Congress decides to cut IRA funding, it does not inadvertently throw the baby out with the bathwater,” wrote Collins, who repeatedly has advocated for more IRA dollars for taxpayer services and technology.

Among the improvements that Collins noted were:

• Improved telephone service: IRS employees answered nearly 9 million more phone calls in fiscal year 2024 compared with fiscal year 2022. Over the same period, the percentage of phone calls answered more than doubled, and the time taxpayers spent on hold dropped by more than half.

• Improved processing times for correspondence: On average, the IRS took 3.5 months to process individual taxpayer correspondence in fiscal year 2024, compared with seven months in fiscal year 2022.

• Technology improvements: These improvements included secure messaging for some taxpayers; expanded chatbot functionality; expanded functionality of individual taxpayer online accounts; and the ability of taxpayers to submit more than 30 forms to the IRS from mobile devices.

“These technology options — most of which have been standard for years in the private sector — represent a leap forward into the 21st century for the IRS and therefore for taxpayers. But most are still works in progress, and their full deployment remains dependent on the availability of funding,” Collins wrote.

The taxpayer advocate is required by law to report the 10 most serious problems facing taxpayers in their IRS interactions. Of those 10, Collins cited two as the most critical:

• Delays in processing employee retention credit (ERC) claims: As of Oct. 26, 2024, the IRS faced a backlog of about 1.2 million ERC claims as it weeds out ineligible claims from the eligible ones. “The slow processing time is harming many eligible businesses that are relying on these funds to pay expenses,” Collins wrote.

• Worsening delays in resolving identity theft cases: The IRS took almost two years to resolve identity theft cases closed by its identity theft victim assistance unit and get refunds to the nearly 500,000 victims in fiscal year 2024. That is a longer delay than in fiscal year 2023, when cases took almost 19 months to resolve.

Collins recommended 69 legislative changes in her 2025 Purple Book intended to strengthen taxpayer rights and improve tax administration. Among the recommendations is that Congress authorize the IRS to establish minimum competency standards for federal tax return preparers and revoke the identification numbers of sanctioned preparers.

Of the 160 million tax returns that the IRS receives each year, most are handled by paid tax return preparers, such as CPAs. However, most preparers do not have credentials, and those without credentials disproportionately are responsible for inaccurate returns.

The three previous presidential administrations have recommended that Congress authorize Treasury to establish minimum competency standards for federal tax return preparers.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.