Yellen: These are the 4 top priorities for the nearly $80 billion in IRS funding

Personal Finance

Treasury Secretary Janet Yellen speaking at a news conference on July 14.
Made Nagi | Reuters

With President Joe Biden‘s sweeping tax, health and climate package newly signed into law, Treasury Secretary Janet Yellen is asking the IRS to deliver a plan within six months for the agency’s nearly $80 billion in funding.

“The Inflation Reduction Act provides the IRS what it has needed for years — a stable stream of mandatory funding that will allow the agency to serve American taxpayers the way they deserve,” Yellen wrote in a memo Wednesday to IRS Commissioner Charles Rettig.

Yellen said the cash infusion will help the IRS enforce tax laws for “high net-worth individuals, large corporations and complex partnerships who today pay far less than they owe,” according to the memo obtained by CNBC.

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Enacted on Tuesday, the Inflation Reduction Act allocates $79.6 billion to the IRS over the next 10 years, part of Biden’s agenda after years of budget cuts.

Yellen outlines 4 priorities for the $80 billion in funding

The memo also describes how the nearly $80 billion in funding provides a “monumental opportunity” to transform the IRS, outlining four priorities.

1. Clear the backlog

With millions of unprocessed tax returns, Yellen aims to “fully resolve” the agency’s backlog, the memo outlined. Rettig in March pledged to clear the pileup by the end of 2022, and as of Aug. 5, there were 9.7 million unprocessed individual 2021 tax returns, according to the IRS.

2. Improve customer service

Yellen also pushed for making “significant improvements” to taxpayer service. While the agency only answered 11% of phone calls during fiscal 2021, the Taxpayer Advocate reported, the IRS has recently leveraged technology to make improvements.

3. Overhaul the agency’s technology systems

Another priority is an “overhaul” of the agency’s technology systems, which the memo describes as “decades out of date.”

“The two IRS systems containing the official records of individual and business taxpayer accounts are the oldest major technology systems in the federal government,” National Taxpayer Advocate Erin Collins wrote in her January report to Congress. 

4. Hire IRS employees to replace retiring workers

Yellen also prioritized hiring IRS employees, with the goal of replacing the 50,000 IRS workers expected to retire over the next five years.

During fiscal 2021, the IRS workforce consisted of 78,661 full-time employees, a decrease of 12.9% since 2012, according to the agency.

“This operational plan is key to ensuring the public and Congress are able to hold the agency accountable as it pursues needed improvements,” Yellen added.

Critics worry about increased IRS audits

The $80 billion of IRS funding has been controversial. While critics have argued the new resources may trigger increased audits beyond wealthy taxpayers, Yellen responded to these claims in a letter to Rettig on Aug. 10.

“Specifically, I direct that any additional resources — including any new personnel or auditors that are hired — shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels,” she wrote.

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