Paper tax returns and correspondence once filled entire rooms at the IRS campus in Austin, Texas.
Two years ago, the facility saw major pandemic-era backlogs and minimal staffing under mandatory telework orders.
The Austin facility is one of three IRS processing centers that still ingest much of the agency’s paper-based workload.
Until recently, the IRS — still reeling from a decade of staff reductions and budget belt-tightening — considered closing the campus. That would only leave sites in Ogden, Utah, and Kansas City, Missouri, to manage the crush of paper.
But the Austin campus is now the model for long-term improvements IRS is making under the Inflation Reduction Act.
The 2022 legislation gave the IRS roughly $60 billion in multi-year modernization funds — after Republican lawmakers rescinded about $20 billion of this money.
‘You can see the future of taxes right here’
IRS Commissioner Danny Werfel, speaking last Friday in Austin, said photos of the paper-filled cafeteria in Austin in 2022 demonstrated how the agency was “starved of resources,” before getting a windfall of Inflation Reduction Act funds.
“Today, it’s a whole new world for the IRS, where we are working to address those issues,” Werfel said. “You can see the future of taxes right here in Texas. We are fundamentally transforming and improving the IRS.”
Treasury Secretary Janet Yellen said the Austin center is “back to fully functioning,” and is now upgraded with new equipment. Yellen and Werfel, for example, were shown high-capacity scanners to scan the millions of forms the agency receives every year.
The IRS installed these scanners to eliminate “oceans” of paper. The agency expects to digitally process all the tax returns it receives, as well as half of all paper-based correspondence, non-tax forms and notice responses by the 2025 filing season.
The IRS is also stepping up efforts to allow taxpayers to handle all their transactions with the IRS digitally, if they prefer.
The agency updated its “Where’s My Refund?” tool during this year’s filing season to provide more detailed refund status information and saw a 30% increase in the tool’s use.
Yellen said the IRS has launched more digital tools “in the past two years than in the previous 20.”
Those efforts will help keep Austin’s cafeteria from once again becoming an overflow room for paper tax returns and mail waiting to be processed.
The National Treasury Employees Union also highlighted the Austin campus as an example of the IRS’ sudden turnaround.
“From the employee’s point of view, it wasn’t that long ago that employees didn’t have adequate supplies,” NTEU National President Doreen Greenwald said. “Some are even purchasing their own just to get the job done. Antiquated computers, broken equipment, slowed productivity, knowing there weren’t enough people to process paper and answer phone calls.”
The IRS considered closing the Austin facility this year — but agreed in 2022 to keep the facility open, after facing pressure from lawmakers.
“The IRS listened, and they didn’t close Austin. And I’m really pleased, because history has shown us to be correct,” Greenwald said.
The Austin campus now stands as an example of how “government, when properly funded and staffed, can dramatically improve its operations and make a real difference in people’s lives,” she said.
“We will continue to partner with the IRS to help implement solutions to further improve the IRS workplace and the needs of the IRS workforce,” she said. “We will embrace new technology that will further expand better service for taxpayers and help build a better culture that appreciates, recognizes and rewards employees, to ensure the IRS has what it takes to continue to attract and retain employees who will want to build a career of public service for the IRS today.”
Growing workforce, strengthening enforcement
The IRS is tapping into Inflation Reduction Act funds to strengthen enforcement efforts. Its non-filer program has run sporadically since 2016 because of budget cuts and staff limitations.
The IRS is stepping up efforts to recover taxes owed by wealthy individuals. Six months into a new initiative, the agency has recovered $1.3 billion from wealthy taxpayers.
The agency is targeting two categories of tax delinquents — more than 1,600 millionaires with more than $250,000 in tax debt, and 125,000 high-income individuals (earning between $400,000 and about $1 million annually) who haven’t filed a tax return since 2017.
The IRS is also rebuilding its workforce. Its workforce grew to more than 90,000 employees last year — its largest workforce in more than a decade — and is on track to exceed 100,000 employees in the coming years.
Werfel, however, is calling on Congress to keep providing the IRS with an annual budget that can support its day-to-day operations. Both the House and Senate propose giving the IRS a flat $12.3 billion budget for fiscal 2025.
“Our ongoing success hinges on sustained investments to make sure that we have the right size workforce,” Werfel said.
“We need to ensure we provide our employees with the right training and tools, as well as modern technology infrastructure to help taxpayers. These are needed to allow the IRS to continue its transformation work to serve the nation today and into the future,” he added.
Yellen said lawmakers are looking at further IRS cuts.
“We continue to face challenges from those in Congress who want to cut the funding that’s enabling it, and I’ll just say this would be disastrous,” Yellen said. “It could make it easier for wealthy Americans and corporations to avoid paying what they owe while working Americans foot the bill.”
The agency is also using these multi-year funds to modernize its legacy IT. Some of its systems are among the oldest still running in the federal government. Among them, the IRS is modernizing key portions of the Individual Master File, a 65-year-old system at the heart of its operations during the filing season.
IRS employee first to use Direct File
An IRS employee in Austin was also the first taxpayer to use Direct File, the agency’s free, online tax filing platform. The IRS piloted Direct File during this year’s filing season with 12 states, and made the program permanent in June.
Another eight states, so far, have opted into Direct File for next year. The Washington Post reports about half of all 50 states are expected to enroll in Direct File for the 2025 filing season.
This project all started with Dixie Warden, an IRS human resources specialist in Austin — the first person to use Direct File to submit her federal tax return.
“My reason was pretty simple. I just wanted to save some money, like we all do,” Warden said. “It was fast, and it was easy, and I got it done exactly as I expected.”
Warden said she was surprised by reporters’ interest in her experience with Direct File. She told the Associated Press she saved nearly $400 this year using Direct File.
“Afterwards, I was a little bit confused, because I was asked to do an interview, and I was like, ‘For what? I’m filing my taxes. We all have to do that. What’s the big deal?’ And looking back on it now, I realize all the hard work that was put into the Direct File, let us, the IRS, make a good first impression,” Warden said.
“This Direct File has the capability to keep millions of dollars in taxpayers’ pockets,” she added. That is a huge deal, and I’m so proud to be a part of it, even though I didn’t think anything of it at the time.”
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