PROLOGUE

The Taxpayer First Act (TFA) was enacted on July 1st, 2019 with strong bipartisan support to reimagine and enhance the way we serve taxpayers, continue to enforce the tax laws in a fair and impartial manner, and train IRS employees to deliver a world-class customer experience. The Act consists of 45 provisions, including specific mandates to improve the taxpayer experience. There are three provisions requiring the development of the critical plans included in this report (Taxpayer Experience, Training, and Organizational Redesign). These plans lay out a vision to revolutionize tax administration in our country for the 253 million citizens who interact with the IRS annually, and ensure that the $3.6 trillion of federal revenue that the IRS collects annually will continue. This is an aspirational vision that builds on work that is already underway and provides an investment framework for evaluating IRS funding levels in future years. However, without the commitment of significant multi-year funding, the IRS cannot make the taxpayer improvements necessary to maintain trust and confidence in the federal government and its tax collection system.

High-quality, personalized service is key to helping taxpayers understand and comply with their filing and reporting obligations, well-trained employees provide excellent taxpayer service, and a streamlined organizational structure makes it easier for taxpayers and employees to navigate the agency and get the help they need when they need it. Strong technology infrastructure is critical to delivering on this vision. The Integrated Modernization Business Plan, delivered in April 2019, was developed to establish the underlying infrastructure required to modernize the IRS. However, the initial funding requested for modernization only takes us so far. While the Integrated Modernization Business Plan lays the foundation for improving the taxpayer and employee experience, the Taxpayer First Act requires us to build upon this foundation to deliver the experience taxpayers expect.

The IRS currently estimates that full implementation of the Taxpayer First Act plans and Integrated Modernization Business Plan would cost $4.1 billion over the five-year period from FY2021 – FY2025 broken into three broad categories:

• TFA Legislatively Mandated Provisions: $550 million over five years to implement specific

mandates outlined in the act, apart from the development and implementation of strategies

• TFA Strategy Development and Implementation: $1.6 billion over five years to develop

and implement the Taxpayer Experience, Training and Organizational Redesign plans required by the TFA

• IRS Modernization Plan: $1.9 billion associated with achieving necessary modernization of

IRS systems, cybersecurity and operations

Additional costing details can be found in the Appendix 9.5.2.

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PROLOGUE

In addition, in FY2020 the IRS spent $68 million on the implementation of TFA legislatively mandated provisions. FY2020 expenses were funded out of our original budget allocation as no funding was specifically appropriated to cover those needs. Our FY2021 budget submission requested funding of $106 million for implementation of the legislatively mandated provisions of the Taxpayer First Act and $300 million for the Modernization Plan.

The TFA mandates included in the Act are aimed at strengthening taxpayer rights, modernizing the IRS and combating identity theft and fraud. The IRS estimates that full implementation of these requirements by FY2025 would cost an additional $444 million, roughly $111 million per year, above the amounts previously committed or requested. Some of the provisions that require significant additional investments include:

• Provision 1001, Establishment of IRS Independent Office of Appeals: Renames the IRS

Office of Appeals as the IRS Independent Office of Appeals and adds new rules that require the Independent Office of Appeals to make its referred case files available to:

• Individuals with adjusted gross incomes of $400,000 or less for the tax year to which

the dispute relates;

• Entities with gross receipts of $5 million or less for the tax year to which the dispute

relates.

In addition, when the IRS or Chief Counsel has issued a notice of deficiency to a taxpayer and denies the taxpayer’s request for referral to the IRS Independent Office of Appeals, the IRS must now issue a notice to explain the reasons. It also needs to tell the taxpayer how to protest the denial.

• Provision 2102, Internet Platform for 1099 Filings: Requires the IRS to develop an

Internet portal by Jan. 1, 2023 that allows taxpayers to electronically file Forms 1099. The website will provide taxpayers with IRS resources and guidance, and allow them to prepare, file and distribute Forms 1099, and create and maintain tax records.

• Provision 2005, Identity Protection Personal Identification Numbers: Requires the

Secretary to establish a program to issue an Identity Protection (IP) PIN to any U.S. resident who requests one. Additionally, the Act requires the Secretary to expand the issuance of IP PINs every year and ensure nationwide availability within five years.

• Provision 3101, Mandatory E-filing by Exempt Organizations: Extends the requirement

to e-file to all tax-exempt organizations required to file statements or returns in the Form 990 series or Form 8872 (Political Organization Report of Contributions and Expenditures). The Act also requires that the IRS make the information provided on the forms available to the public in a machine-readable format as soon as possible.

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PROLOGUE

The IRS stands ready to begin a new era in tax administration that is:

• Taxpayer Focused: We should provide interactions that are efficient, informative,

personalized and convenient. Taxpayers should have the information they need to understand and comply with their taxes. Key elements of this program include:

• Expanded Digital Services: Simplifying the tax process with enhanced mobile and online experiences, digital filing and payment options, and online portals for tax professionals.

  • Seamless Experience: Enhancing self-service capabilities and IRS-assisted service

capabilities, expanding access to the IRS by providing taxpayers with their preferred channel of service (website, telephone, in person, etc.) and integrating those channels to provide a seamless experience throughout the taxpayer lifecycle.

• Proactive Outreach and Education: Providing clear and timely communications,

improving how and when we provide information to taxpayers by using new technology, applying behavioral insights, expanding our social media strategy, and making use of our trusted partnerships.

• Community of Partners: Building on our existing partnerships and developing

new partnerships to create an interactive network of trusted partners across the tax community.

• Focused Strategies for Reaching Underserved Communities: Establishing

specific strategies to engage with underserved communities to address issues of communication, education, transparency, trust, and access to quality products and services, including providing customized education and outreach in the languages spoken by specific taxpayer groups.

• Enterprise Data Management and Advanced Analytics: Developing a secure data

management strategy that includes an agency-wide understanding of operational data and applying advanced analytics to better understand taxpayer needs to improve service and compliance.

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PROLOGUE

• Employee Focused: Our employees should be well-trained, adaptable, highly motivated and

customer-focused. IRS employees would receive comprehensive and thorough training - both substantively (on the law and mechanics) and attitudinally (utilizing world-class customer experience techniques). Key elements of this program include:

• Streamlining current training processes through the creation of a centralized

educational organization, or “IRS University” to support the IRS mission.

• Developing annual training on taxpayer rights and focusing employee training on

early, fair, and efficient resolution of taxpayer disputes.

• Ensuring consistent skill development and employee evaluations across the IRS.

• Delivered Efficiently: We are modernizing our organizational structure to better align

operations with our mission, increase agency-wide collaboration, and deconstruct operational silos. Key elements of this program include:

• Realigning the IRS’s organizational structure to increase consistency across

compliance functions and taxpayer services.

• Improving the leadership structure, reducing organizational redundancies and

removing silos.

• Providing solutions to best position the IRS to combat cybersecurity and other

threats.

Compliance with the statutory requirements of the TFA, including the full implementation of the strategies included in this report and the key TFA mandates, will fundamentally change the taxpayer experience. This would improve trust and confidence in the IRS which can result in improved compliance, reducing the tax gap and benefiting every taxpayer. But we must first improve our core technology infrastructure. To truly “Put Taxpayers First” and successfully implement the Taxpayer First Act, the IRS needs adequate funding. Investing in the IRS represents an investment in the future of the United States and the delivery of important services every American deserves.

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