IRS budget plan Phase 3: addressing the tax gap through expanded enforcement

The IRS received $80 billion in funding from the Inflation Reduction Act to improve taxpayer services over the course of 10 years. While ambitious, the IRS is already beginning work on initiatives, which will be implemented this year and next. There are five phases total.

Additionally, although there is an agreement in place for future cuts based on a tentative deal reached in June 2023 to raise the debt ceiling limit, specific plans to cut the $80 billion in funding have not been announced as of the writing of this article.

Here are the initiatives in Phase 3 of the IRS’s five-year strategic operating plan.

2023-2024 initiatives

1. Establish a centralized compliance planning function to identify high-risk cases
To effectively target noncompliant taxpayers, the IRS has established a centralized compliance planning function with sophisticated analytics systems to identify potential high-risk compliance cases

2. Implement a data and research approach to inform and continuously refine compliance coverage levels needed to promote voluntary compliance
In its pursuit of promoting voluntary compliance, the IRS has implemented a novel approach that relies on data and research. By leveraging comprehensive datasets and conducting thorough analyses, the IRS gains valuable insights into compliance patterns. This information allows them to develop strategies for targeting noncompliant taxpayers accurately. Moreover, continuous refinement of compliance coverage levels ensures a proactive response to emerging compliance challenges.

3. Hire and onboard the first wave of specialists to work toward increasing compliance coverage rates
Recognizing the need for a skilled workforce to enhance enforcement efforts, the IRS has embarked on a significant recruitment drive. The first wave of specialists will be hired and onboarded to bolster compliance coverage rates. These experts bring diverse knowledge and expertise to the IRS, enabling them to tackle the complex tax filings and high-dollar noncompliance cases effectively.

2025-2028 initiatives

1. Use new centralized analytics systems and refined risk-based case selection and routing procedures to select taxpayer compliance cases
Gone are the days of manual case selection processes. The centralized compliance-planning function, armed with new analytics systems, will employ a refined risk-based approach to select and route taxpayer compliance cases. By considering various risk factors, such as income levels, business structures and filing histories, the IRS can prioritize cases that have a higher likelihood of uncovering significant noncompliance.

2. Complete the hiring and onboarding of specialists to achieve compliance coverage rates
The IRS’s plan has paved the way for substantial improvements in taxpayer services. Part three of this blog series sheds light on the IRS’s efforts to address the tax gap by targeting taxpayers with complex filings and high-dollar noncompliance. Through centralized compliance planning, data-driven approaches and the recruitment of specialized personnel, the IRS is well on its way to increasing compliance coverage rates and promoting voluntary compliance.

Part four of this blog series will explain the IRS’s tactics to achieve its objective to deliver cutting-edge technology, data and analytics to operate more effectively.

We’ve covered Phase 1 and Phase 2 in previous blog posts in the series.