The tax filing season is not only a hectic time for individuals, but it’s also a busy period for the IRS (IRS).
On top of the responsibilities for the 2022 tax season, the agency carried a backlog of 6 million unprocessed individual returns, 2.3 million amended individual returns, 1 million unprocessed employment tax returns, and half a million revised employment tax returns into 2022. For example, only about 20% of the 120 million calls made to the agency last year were returned.
The scenario was recently described in an op-ed by IRS Commissioner Charles Rettig, who argued for a larger IRS staff to deal with the situation. Expanded personnel would obviously help with the current issue, but the root causes of the IRS’s overburdening remain. To address these larger challenges, the IRS’s information technology (IT) infrastructure must be upgraded, and policymakers must stop relying on the IRS to administer social programmes.
1) THE INTERNAL TECHNOLOGY OF THE IRS IS WAY OUT OF DATE.
The IRS’s computing capacity is woefully inadequate. Our work laptops and personal phones appear to be updated on a weekly basis. However, the IRS’s Individual Master File, which is used to process data from individual tax accounts, was created in the 1960s. The Taxpayer Advocate Service (an IRS entity dedicated to the interests of taxpayers) has long advocated for the agency’s IT to be improved, claiming that out-of-date technology harms both tax filers and tax collectors.
2) MORE PROGRAMS, SUCH AS RRP, ARE REQUIRED
The IRS’s IT expenditures have paid off, resulting in a better taxpayer experience and more efficient tax collection operations. The IRS’s former fraud detection software was replaced by the Return Review Program (RRP) as a pilot programme in 2014. With an annual budget of about $100 million, the initiative raised more over $6.5 billion from January 2015 to November 2017. Programs like RRP can help prevent fraud and boost revenue while putting less scrutiny on law-abiding taxpayers by better targeting the IRS’s audit activities.
3) DELEGATE SOME OF THE IRS’S RESPONSIBILITIES TO OTHER AGENCIES
Another important aspect of improving the IRS is to reduce the scope of the obligations that the agency is responsible for.
The agency is responsible for distributing a substantial amount of the United States’ safety net programmes. The IRS’s mission, on the other hand, is to collect taxes, not to distribute social services. The IRS’s oversight of health care, education, family, energy, and work-related tax advantages causes uncertainty, adding to the unacceptable backlogs that individuals face today.
Because of its complexity, the Earned Income Tax Credit (EITC) has a famously high error rate. The IRS calculated that over 25% of the $73.6 billion in EITC claims were fraudulent in 2018.
4) ADMINISTRATION OF SOCIAL SERVICE PROGRAMS ON THE SHIFT
Relying on the tax system to fund social programmes has its drawbacks for recipients. In most years, when families file their taxes, they are eligible for credits such as the EITC and CTC, and they receive their relief in a lump-sum payment rather than monthly payments. Tax season can’t come soon enough for a cash-strapped family. Last year, the American Rescue Plan’s temporarily increased CTC was partially paid in monthly instalments, a measure intended to better match payments to people’s circumstances but a tough policy for the IRS to implement smoothly.
Senator Mitt Romney, R-Utah, has supported a bill, as have Reps. Rashida Tlaib, D-Mich., and Mondaire Jones, D-N.Y., to replace the CTC with a child allowance administered by the Social Security Administration. Some progressive critics have also admitted that placing a child benefit outside of the tax code is preferable, because the Child Tax Credit frequently fails to reach the poorest children.
While adding more employees would assist in the short term, officials must consider the long term. Congress should invest in vital IT upgrades and avoid entrusting the administration of complicated social programmes to the IRS.