This tax season, let’s bring the IRS into the 21st century

This year’s tax season kicks off at a transformative time for the Internal Revenue Service. Amid a leadership transition and the ever-evolving tax code, the agency has become the rope in a proverbial game of political tug-of-war over new funding included in last year’s Inflation Reduction Act (IRA).

But while there are valid disagreements in Washington over the appropriate level of IRS funding for enforcement activities, Republicans and Democrats alike should be able to agree that Americans deserve a more responsive and taxpayer-friendly IRS. We don’t have to look any further than the recent chaos plaguing America’s travel industry to see what happens when neglect and underfunding leave a regulatory agency like the Federal Aviation Administration unable to manage breakdowns in the sector it oversees.

Rather than a single high-profile collapse, the IRS has struggled for years to keep up as the tax code has grown increasingly complex, workforce attrition has risen and funding to the agency has lagged behind new mandates from Congress like the distribution of the COVID-19 stimulus payments. 

From delayed refunds to unopened mail to unanswered calls, improvements to the entire tax ecosystem that give taxpayers the experience they deserve are long overdue.

It’s not just everyday Americans that struggle to get timely service from the IRS: As the head of Jackson Hewitt, the second-largest retail tax preparation company, I know firsthand that tax pros also face challenges getting IRS assistance for the customers they’re helping. According to a report from the National Taxpayer Advocate, only 16 percent of calls to the agency’s service line for professional tax preparers were answered last year, an all-time low.

If used effectively to truly serve America’s taxpayers, the $3.2 billion recently earmarked by Congress for IRS customer service improvements and $4.8 billion for business systems modernization can be a once-in-a-generation lifeline for an agency that desperately needs it. Effective implementation of this customer service and systems modernization funding, which has historically enjoyed bipartisan support, can lay the foundation for an IRS that better serves all taxpayers, from small business owners to gig economy workers to the millions who rely on the Earned Income Tax Credit.

One important step the IRS can take right away is to enhance its partnerships with professional tax preparers who submit the majority of the more than 165 million individual tax returns filed each year. Now is the time for the IRS to invest its new resources in a digital platform that empowers tax preparers to better assist filers to comply with their tax responsibilities and manage issues as they arise. Such a platform would allow tax preparers, with their clients’ permission, to securely access critical correspondence between the IRS and taxpayers online, reducing the need for millions of phone calls, faxes and mailed documents. And allowing preparers to help filers validate certain key data points in advance of filing their return would help avoid the time-consuming error resolution process.

Another area for modernization is the IRS’ heavy reliance on paper forms that cannot be digitally scanned. Recently departed commissioner, Charles Rettig, called the agency “a paper-based organization operating in a digital world economy,” and the National Taxpayer Advocate has called a reliance on paper “the IRS’s kryptonite.” For companies like ours, it can be more efficient to fax a client’s forms to the IRS than submit them digitally, which adds to backlogs of piled-up forms and frustrates taxpayers.

Other overdue improvements to the tax ecosystem lie outside the walls of the IRS. Today, there are essentially no national minimum standards to become a tax preparer. That means there’s no timely or effective way to identify, prevent and remove fraudulent preparers. As a result, too many Americans are exposed to unethical tax preparers who file inaccurate returns, misuse taxpayer identities and steal taxpayer refunds.

While many companies require tax professionals to comply with strict training and education standards prior to and throughout each tax season, not everyone plays by these rules, including so-called “ghost preparers,” individuals who prepare tax returns — typically using do-it-yourself (DIY) tax software products — without signing the tax return or otherwise providing valid documentation.

Bipartisan congressional legislation has previously been proposed that would give the IRS the tools it needs to tackle this problem, and this issue could prove to be a rare point of unity in the 118th Congress. But even without explicit authorization, the IRS should explore using every tool in its arsenal to raise standards for tax preparers and protect hardworking Americans from fraudsters.

When the dust settles, there is plenty for Republicans and Democrats to agree on in improving the taxpayer experience and cracking down on fraudulent tax preparers. The IRS, which turned 160 years old last year, has a rare opportunity to take important steps into the modern era and better fulfill its mission. It’s time to seize it.

Greg Macfarlane is the chief executive officer of Jackson Hewitt Tax Service Inc., one of the largest tax-preparation services in the U.S.