TURNING THE PAGE: The IRS is taking a victory lap today after what’s been a pretty smooth filing season. The agency has put a string of disastrous filing seasons behind it, and reports it is now answering people’s phone calls faster, even as it responded to 1 million more calls than last year. The IRS is also processing people’s returns faster, expanding the slate of things they can do online and boosting in-person help too. “When it has the resources it needs, it will provide taxpayers the service they deserve,” a triumphant Treasury Secretary Janet Yellen told reporters. But as yours truly reports this morning, that success is raising its own complications. A big reason for that turnaround is the IRS is running through a special pot of money Democrats gave the agency to up its customer service game much faster than expected. Out of the nearly $80 billion they initially gave the department, $3.2 billion was earmarked for improving taxpayer services. That money was supposed to last a full decade, but the IRS now says it will be exhausted in the next 18 months. It now wants billions more, as well as the ability to tap other parts of that Inflation Reduction Act money, saying it will otherwise be forced to drastically cut back on taxpayer services. That will spark a big fight over the IRS’s budget, one that will likely put a fat target on another component of that IRA money: enforcement. That has become a piggy bank for cash-hungry lawmakers, who’ve already rescinded more than $20 billion of the $44 billion lawmakers originally provided to increase audits of the rich, though that’s the one category of spending that actually raises money for the government. Many lawmakers will surely ask why they can’t take more in the name of taxpayer services, especially when the IRS has barely begun to eat into that enforcement allowance. It spent just $300 million of that money last year, budget documents show, and figures it will only spend another $1 billion this year. Look for this to potentially come up at a Senate Finance Committee hearing Tuesday on the filing season and the IRS’s budget. HERE COMES THE DIRECT FILE AUTOPSY: The end of filing season marks the unofficial beginning of the debate over the future of Direct File. Democrats have heavily promoted the IRS’s pilot program as a way for people to fulfill their tax obligation without having to pay a middle man. In January, administration officials said they hoped 100,000 taxpayers would take advantage, and it reported in mid-March that 50,000 had started or filed returns. A Treasury official says 60,000 have now submitted returns through Direct File, though the administration is expected to update that figure shortly. Once filing season closes, lawmakers will demand a full accounting. While Democrats emphasize the savings to people who participated in the program, the cost per user to the taxpayer is likely to be an issue. The IRS says it budgeted $114 million for the initiative in 2024, after spending $11.6 million last year. A four-figure cost per return is going to raise eyebrows on Capitol Hill, especially when the initiative is focused on people who don’t have particularly complicated filings. TAX DAY, BUT NOT FOR EVERYONE: The number of people putting off filing until October keeps growing. The IRS now expects more than 20 million requests for extensions, compared to around 15 million before the pandemic. That’s partly because the department has been handing out a long list of weather-related delays, giving more time to Michiganders hit by tornadoes, Rhode Islanders affected by flooding and Hawaiians who contended with wildfires, among many others. It’s also offered extensions to people affected by the Oct. 7 attacks on Israel. But the rise in extension requests also comes as the number of people who owe at tax time is also surging, and some wonder if that’s also behind the increase in extensions (even though everyone is required to pay what they owe by April 15). In tax year 2022, nearly 40 million people had balances due when they filed, up by a third from the pre-pandemic years. Through April 5, the IRS said it had received 102 million returns, about the same number as last year. Tens of millions of returns typically pour into the agency in the final days. It handles more than 160 million individual returns each year. Personnel moves: Michael Plowgian, who left in December as Treasury’s top negotiator on the OECD tax project, has joined KPMG.
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