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IRS says taxpayer service will suffer if Congress cuts modernization funds

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January 11, 2025
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IRS says taxpayer service will suffer if Congress cuts modernization funds

By David Lawder

WASHINGTON (Reuters) – The Internal Revenue Service said on Friday it will launch the 2025 tax filing season on Jan. 27 with expanded tools that cannot be adequately supported if the Republican-controlled Congress rescinds tens of billions of dollars in supplemental IRS funding.

IRS Commissioner Danny Werfel said that should the IRS lose funding that was initially enacted at $80 billion over 10 years, it will have to reduce staffing levels that have improved taxpayer service and reduced processing times and backlogs for tax returns. The agency will also see its modernization program stagnate, putting many technology improvements in limbo, he said.

“And so if we don’t have the right staffing levels, the performance will backslide, and we will see inevitably slower processing delays and potential backlogs,” Werfel told reporters during a news briefing to preview the 2025 filing season.

The IRS won the supplemental funding in 2022 as part of the Biden administration’s Inflation Reduction Act, largely a clean energy subsidy and healthcare bill. The funding, which was passed with votes only from Democrats, made up for more than a decade of understaffing, and the U.S. Treasury had estimated that it would enable beefed up enforcement that would yield $564 billion in new tax revenue over a decade.

Republicans called unsuccessfully for the funding to be rescinded, arguing that it would unleash an army of new auditors to harass taxpayers. But they subsequently chopped back $20 billion during government funding battles in 2023, bringing the total down to $60 billion through 2031.

But another $20 billion in funding was suspended under a stop-gap funding measure last fall due to a drafting anomaly that repeated the prior year’s language. Unless that amount is restored, Deputy Treasury Secretary Wally Adeyemo said the U.S. budget deficit could rise by $140 billion over 10 years due to reduced enforcement.

EXPANDED DIRECT FILE SYSTEM

While Trump has said little about the IRS funds, billionaire Elon Musk, who co-leads the informal Department of Government Efficiency cost-cutting effort, asked subscribers on his X social media platform in November whether IRS funding should be “deleted.”

The IRS, which collects 95% of federal revenues, has focused its initial new funding on increasing taxpayer-facing staff to answer questions, bringing average taxpayer phone waiting times to under five minutes. It introduced new scanning technology to allow it to process paper tax returns far more quickly.  

Enhancements scheduled for the new tax year include an expanded Direct File system now available in 25 states, up from 12 in a pilot program last year, allowing taxpayers to file simpler electronic returns for free directly with the IRS without the need for a third-party preparer or software. New electronic form-signing capabilities and phone chatbots also are being made available, the IRS said.

Werfel said reduced funding would cause new technology advances to “stagnate” and recently rolled-out tools will have fewer employees supporting them, creating longer wait times for taxpayers with issues.

It also will hurt revenue collections as the rebuilding of the IRS’ capacity for sophisticated audits of wealthy taxpayers suffers, he added.

This post appeared first on investing.com
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