IRS Modernization Continues as Agency Workforce Goes Remote

Adjustments are underway as the Internal Revenue Service adapts to a hybrid workplace, but the agency remains focused on upgrading tax-filing and customer service systems, an agency official said March 22.

The IRS is examining a wide range of returns to determine how to make them compatible with the Modernized e-File program, said Douglas O’Donnell, deputy commissioner of Service and Enforcement.

“I was struck by the volume of paper that I saw,” O’Donnell said, describing a visit to a processing facility. “Part of what I wanted to see was, what are we doing with the amended returns?”

Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, is among the forms being considered for electronic filing compatibility, O’Donnell said at the American Payroll Association’s Capital Summit.

Form 941-X and other amended returns are filed manually. Adding the forms to the Modernized e-File system would make the process more efficient, O’Donnell said.

The agency also seeks to replace the Electronic Federal Tax Payment System (EFTPS) as the foundation for tax collection, O’Donnell said. The new system would allow employers to submit batch payments.

Technological advancements extend to the agency’s customer service offerings as well, O’Donnell said. There is significant interest in expanding the callback program, which saves taxpayers time by reducing the amount of time that callers remain on hold. About 70% of the agency’s toll-free numbers offer callback services, and the agency seeks to expand that option to 95% of its toll-free numbers by 2024, he said.

The IRS expects to continue to allow its employees to work remotely, which will impact the communication options available to taxpayers, O’Donnell said. Both in-person and virtual services will remain available, but determining the right balance is a continuous effort, he said.

The agency regularly evaluates facilities to ensure that they’re located in the areas that are the most beneficial to taxpayers and tax professionals, O’Donnell said. Some facilities closed during the pandemic, and others have opened. There has been difficulty maintaining IRS centers in some desired locations because of staffing limitations, he said.

There’s significant demand for in-person IRS assistance, so the IRS will not become an entirely virtual agency, O’Donnell said. The agency is still figuring out the best mix of services to provide, and it will take time to see where permanent offices are ultimately established, he said.

One challenge the IRS faces is maintaining the staff and resources needed to implement new laws, O’Donnell said. New laws are signed every year—or even multiple times per year—that impact the agency, but the legislation rarely includes the appropriations needed to implement the changes, he said.

However, the agency hasn’t experienced the high attrition rates that have recently burdened other employers, O’Donnell said. Retention has improved because of the telework flexibility, he said.

Opportunities remain available for stakeholders to collaborate with the IRS, which could include cross-training on industry-specific issues, O’Donnell said.

“We’re always looking for new ideas, how we can improve the capabilities of our people to understand what businesses are going through—but also for businesses to understand what the government is up against,” O’Donnell said.

O’Donnell acknowledged that employers and agency officials would benefit from better understanding each other’s daily routines. “It’s getting to a point where that sharing of ideas, that sharing of awareness, could be super helpful.”