The Inflation Reduction Act of 2022 has allocated a substantial $80 billion in funding to the Internal Revenue Service (IRS) over the next 10 years. This significant investment aims to modernize the agency's operations and bolster its workforce, ultimately enhancing its ability to collect revenues, particularly from wealthy households and corporations that have long evaded or underpaid their taxes due to chronic underfunding of the IRS.

Unlocking the IRS's Potential: A Strategic Allocation of Resources

Fortifying the IRS's Operational Backbone

The IRS's plans for the newfound funding are ambitious and multifaceted. Approximately 44% of the resources will be dedicated to strengthening the agency's operational support, ensuring that its core functions are streamlined and efficient. This investment will encompass upgrades to the IRS's technological infrastructure, data management systems, and overall administrative capabilities. By modernizing its operations, the IRS aims to enhance its responsiveness, accuracy, and overall effectiveness in serving taxpayers and enforcing compliance.

Empowering Enforcement: A Targeted Approach

A significant portion of the IRS's funding, around 41%, will be directed towards bolstering its enforcement efforts. This strategic allocation will enable the agency to deploy a more robust and targeted approach to identifying and addressing tax evasion and underpayment, particularly among high-income individuals and large corporations. By strengthening its investigative capabilities, the IRS hopes to close the tax gap and ensure that all taxpayers are contributing their fair share.

Modernizing for the Digital Age

The IRS's modernization efforts will also extend to its technological infrastructure, with 8% of the funding earmarked for this purpose. This investment will facilitate the development of more advanced digital tools and platforms, enabling the agency to streamline its operations, enhance data analysis, and provide taxpayers with more efficient and user-friendly services. By embracing the digital transformation, the IRS aims to enhance its overall effectiveness and responsiveness in an increasingly technology-driven landscape.

Enhancing Taxpayer Assistance

Recognizing the importance of taxpayer support, the IRS will allocate 6% of the funding to improving its taxpayer services. This includes enhancing customer service, expanding educational resources, and providing more personalized assistance to individuals and businesses navigating the complexities of the tax system. By prioritizing taxpayer engagement and support, the IRS hopes to foster a more collaborative and transparent relationship with the public.

Exploring the Future: A Direct-File System Study

Lastly, the IRS will dedicate a small portion, less than 0.05%, to conducting a study on the feasibility of implementing a direct-file system. This innovative approach could potentially simplify the tax filing process for millions of Americans, reducing the burden on taxpayers and streamlining the overall tax administration process. While the study represents a relatively small investment, it reflects the IRS's commitment to exploring innovative solutions that could transform the future of tax compliance.The Inflation Reduction Act's substantial investment in the IRS represents a transformative shift in the agency's capabilities and priorities. By strategically allocating resources across operational support, enforcement, modernization, taxpayer services, and the exploration of a direct-file system, the IRS aims to enhance its overall effectiveness, close the tax gap, and foster a more equitable and efficient tax system for all.