Janet Yellen tells IRS to develop modernization plan in 6 months

Now that President Joe Biden signed Democrats’ expansive climate, tax and health care bill into law, Treasury Secretary Janet Yellen has directed the IRS to develop a plan within six months outlining how the tax agency will overhaul its technology, customer service, and hiring processes.

In part, the improvements are meant to “end the two-tiered tax system, where most Americans pay what they owe, but those at the top of the distribution often do not," Yellen said in a Tuesday memo to IRS Commissioner Chuck Rettig, whose term ends in three months.

Yellen’s memo, obtained by the Associated Press, outlines the importance of modernizing IRS computer systems and ensuring the agency has an adequately-staffed workforce now that the tax collector is set to receive nearly $80 billion over the next 10 years.

That funding is needed for more than technology. At least 50,000 IRS employees are expected to retire over the next five years.

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Yellen has called for the IRS to “fully resolve the inventory backlog and make significant improvements in taxpayer services,” “to overhaul an information technology system that is decades out of date,” and invest and train employees “so they can identify the most complex evasion schemes by those at the top.”

This year’s tax season resulted in the worst backlog in history for the beleaguered IRS, which has also been tasked with administering pandemic related programs, including sending out stimulus checks, emergency rental assistance, and advance child tax credit checks.

In its June report to Congress, the National Taxpayer Advocate, an independent watchdog within the IRS, also said taxpayers have experienced longer wait times on the telephone, and delays in processing paper returns have been running six months to one year.

Additional funding for the agency has been politically controversial since 2013, when the IRS under the Obama administration was found to scrutinize political groups that applied for tax-exempt status.

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A Treasury Department Inspector General report found that both conservative and liberal groups were chosen for scrutiny.

Most recently, Republican politicians and candidates have distorted how the climate, tax and health care bill would reform the IRS and affect taxes for the middle class.

House Minority Leader Kevin McCarthy (R., Calif.) last week tweeted that “Democrats’ new army of 87,000 IRS agents will be coming for you — with 710,000 new audits for Americans who earn less than $75k.”

Yellen last week sent instructions to IRS leadership not to increase audit rates on Americans making under $400,000 a year annually.

“Instead, enforcement resources will focus on high-end noncompliance,” she said in her Aug. 11 guidance. “There, sustained, multi-year funding is so critical to the agency’s ability to make the investments needed to pursue a robust attack on the tax gap.”