Service Levels and ERC Are Priorities for IRS, Officials Say

Addition and improvement of taxpayer services continues to be a focus of the Internal Revenue Service, while a deadline related to the employee retention credit is also upcoming, two agency officials said March 11.

The IRS’s level of phone service, according to its measurements, increased to 91%, from 85% in 2023, according to Paul Mamo, the IRS’s assistant deputy commissioner for services and enforcement. The average wait time was cut in half, to 2.4 from 5 minutes, he said.

The IRS saved about 600,000 hours of waiting by offering taxpayer callbacks for waits of more than 15 minutes, Mamo said. He noted that the tax practitioner hotline had a lower level of service, which increased to 57%, from 40% in 2023, and does not yet have taxpayer callbacks.

A pilot of a direct filing program launches this week for individual income tax returns, but individuals in only 12 states will be eligible to use it in this filing season, Mamo said.

In June or July 2024, the IRS is planning the launch of e-filing for corrected business returns, and is also looking at adding online versions of more notices, Mamo said.

Mamo added that “there is a lot of work going on in the compliance space,” mentioning recent IRS press releases announcing efforts focused on personal use of corporate jets and high-income nonfilers.

The IRS is also looking to hire 10,000 to 12,000 new revenue agents, Mamo said, characterizing that as an ambitious goal.

Employee Retention Credit

The employee retention credit “continues to be a challenge” for the IRS, said Dan Lauer, the IRS’s director of small business/self-employed examination for specialty taxes.

Lauer and Mamo spoke at PayrollOrg’s Capital Summit in Arlington, Virginia.

The ERC withdrawal program is still ongoing, and guidance on the process is on the IRS website, Lauer said.

The voluntary disclosure program for repaying erroneously claimed credits ends March 22, Lauer said. He said the IRS has “thousands” of active audits related to the ERC, while there are also more than 350 active criminal investigations involving more than $2.9 billion in ERC claims as of Dec. 31.

Lauer also mentioned Generic Legal Advice Memorandum (GLAM) No. AM 2024-001, which was released Feb. 16 and addresses the liability of third-party payers for underpayments of employment taxes related to improper ERC claims.

The guidance focuses on payer arrangements where the third party assumes liability for employment taxes, which include section 3504 agents that file Schedule R with Form 941, Employer’s Quarterly Federal Tax Return, as well as professional employer organizations and certified PEOs, Lauer said.

The Internal Revenue Code is “relatively silent” on the application of credits when a third party is liable for employment taxes, Lauer said. The GLAM stated that the third-party payer and client are both liable for tax underpayments resulting from improperly claimed credits.

While the code addresses the treatment of tax credits for CPEOs, it does not reach to improperly claimed credits, the memo said.

In general, CPEOs are solely liable for employment taxes, but both the CPEO and client are liable for underpayments related to payments to non-work site employees, Lauer said.

The IRS was required by the CARES Act to provide ERC guidance for third-party payers, which it did by issuing Notice 2021-20, Lauer said.