TL/DR –
The IRS has made significant technological advancements but they are undermined by poor interdivisional communication. Despite technological advances, the modernization of the organizational structure has lagged behind, leaving a disconnect between capabilities and accessibility. The IRS has made strides in modernizing its systems, including enhancing live assistance, expanding online services, and digitizing form submission, but it needs to improve its interdivisional coordination and communication.
IRS Improvement Efforts Hindered by Internal Communication and Coordination Issues
Despite the notable strides the Internal Revenue Service (IRS) has taken in recent years to modernize its systems and tools, its efforts are continually undermined by primary issues of ineffective internal communication. While the financial agency’s modern solutions are available, they are largely invisible to taxpayers and practitioners. This contributes to an environment of institutional fragmentation that continues to demand structural reform.
Substantial Technological Investments Hindered by Execution Challenges
In an attempt to modernize, the IRS has significantly invested in technology through funding from the Inflation Reduction Act. The agency initially received $79.4 billion in supplemental act funding in 2022, reduced to $37.6 billion by 2025. From the act’s passage through March 4, 2025, approximately $5.7 billion of the IRS’s funding from the law was spent on technology transformation efforts, according to the Treasury Inspector General for Tax Administration.
These investments, however, have led to significant execution challenges. As reported by the Government Accountability Office, the IRS spent about $1.5 billion on 23 modernization programs in the fiscal year 2024. Issues with contract awards, labor challenges, and program execution difficulties resulted in spending $512 million less than initially planned. As a result, the IRS’s ability to implement investments at the planned pace was hampered.
The IRS’s modernization efforts have resulted in measurable achievements, such as improved live assistance, expanded online services, and expedited digitalization. However, the broader modernization strategy of the IRS has faced considerable setbacks, leading the Treasury Department to announce a strategic pause of IRS modernization efforts in March 2025. The IRS is currently reevaluating its priorities, with many projects paused or canceled due to this reprioritization.
Despite these investments, recent IRS interactions demonstrate considerable limitations in the practical effectiveness of modernization efforts. Key issues include institutional silos, inconsistent communication protocols, and fragmented case management systems. These hinder the function of modern tools and systems as an integrated unit, signifying a gap between the IRS’s capability and the accessibility of its services.
Internal Communication and Fragmentation Issues
Even simple tasks such as submitting a power of attorney (POA) can be delayed due to internal communication issues. The standard online submission process can take up to 13 business days, leading practitioners to resort to faxing the POA directly to the assigned representative. However, not all representatives are aware of an existing online tool that processes submissions instantly, indicating a significant communication issue within the IRS.
These communication issues extend beyond tool discovery, becoming more evident when IRS divisions operate in isolation. An example is a taxpayer facing a levy, who found it impossible to reach anyone responsible for the account due to the levy notice lacking contact information. Despite needing immediate assistance, the response was stuck in a procedural loop of internal escalations and delays.
These issues illustrate the IRS’s primary problem: while it possesses the expertise and authority to resolve matters quickly, it lacks visibility across divisions, leading to stagnant information and inaccessible capability.
Need for Structural Reform
These ground-level issues are indicative of enterprise-level dysfunction within the IRS. The same organizational silos that resulted in $512 million in underspends also prevent a Service Center representative from reaching the Collections Division of Appeals. IRS’s struggle to coordinate its modernization portfolio cascades throughout the agency, resulting in modern tools and capable personnel not functioning as an integrated unit.
The IRS requires structural reform to move forward. The agency needs interdivisional case management systems for better case status understanding, efficient protocols to hold enforcement in abeyance when a reasonable cause claim is pending, and internal communication mechanisms for promoting modern tools like the document upload system uniformly.
While the IRS has made considerable efforts to modernize, their failure to address organizational fragmentation has limited the impact of their technological changes. This has not only resulted in operational inefficiencies but also created concrete harm for taxpayers and practitioners. Until the IRS addresses the organizational fragmentation undermining its modernization investments, practitioners will continue to rely on workarounds, and taxpayers will continue to fall through the gaps.
This article does not necessarily reflect the opinion of Bloomberg Industry Group Inc., or its owners.
About the Author
Casey Kroma is the head of tax controversy at Venning Advisors. He has previously served as a Special Trial Attorney with the IRS Office of Chief Counsel, Large Business and International division, and as a senior manager in Deloitte Tax’s Washington National Tax group.
The information in this article is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
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