Tax season: 3 changes the IRS commissioner says could be in the offing for next year

During an appearance before the Senate on Wednesday, IRS Commissioner Daniel Werfel fielded questions on an array of topics: from the just-completed 2022 tax season to the changes coming to the agency as a result of the Inflation Reduction Act.

He also gave a preview of how the next year’s tax season could be different.

“The question is whether we can continue to improve," he said during testimony about the Biden Administration's budget request for 2024. He added that “providing a better filing season experience this year was an important step, but more work remains.”

Here are some of the changes that could be in place the next time you get ready to file your taxes:

A focus on improving customer service

Werfel reiterated the three ongoing commitments that are largely focused on continually improving customer service and will continue to roll out over the coming year.

His list includes: building the capacity for better responsiveness on the phone and in person, improved enforcement against very wealthy tax cheats to close the tax gap, and modernizing the IRS’s technology.

During his back and forth with Senators, he noted that some of his goals have already been realized this tax season as a result of an additional $80 billion funding from the Inflation Reduction Act, which will be distributed to the agency over the coming decade.

Another customer service priority for Werfel in the coming months is getting the agency out of a paper backlog, which included 2.3 million unprocessed individual returns as of April 8. This shortfall grew during the COVID-19 pandemic with the IRS struggling on the tech to digitize the returns quickly as well as manpower shortages.

This is about to change he said: “I think we're gonna start to be able to do a lot more scanning especially in the next tax filing season.”

More clarity on state tax refunds

Werfel also promised that IRS guidance would be much clearer next year when it comes to whether Americans that receive state-level stimulus payments, or tax rebates, have to report them on their federal returns.

This year it was only resolved after officials and taxpayers were forced to sift through conflicting guidance.

“It was really aggravating and irritating that this happened during the middle of tax filing,” Sen. Michael Bennet (D-CO) said during questioning worrying it would happen again.

“We will not allow there to be confusion next filing season and I want to make sure that you and the state of Colorado and other states impacted have a heads up in terms of how we are sorting through this issue,” Werfel said.

But, he acknowledged that core question Bennet and other have raised - whether taxpayers will have to report these state level payments next year - is still being sorted out.

Free prep help from the IRS?

Another issue that came up again and again: Will the IRS will be more directly involved as a free tax preparer for some filers in the years ahead?

The IRS currently has a free tax filing program to help certain Americans submit their taxes without the assistance of outside tax professionals, an offer taken up by only a sliver of filers.

"The whole process needs to be improved," Werfel said. But it was clear that any attempts to address the issue will be a partisan flashpoint in the year ahead.

The Inflation Reduction Act put aside an allotment of $15 million dollars to study the issue with a report on the subject due to be published in May.

It’s clearly an idea that will have widespread Democratic support with Senators like Ron Wyden (D-OR), Elizabeth Warren (D-MA), and Tom Carper (D-DE) devoting time Wednesday to promoting the idea and often blaming the "tax prep lobby" for holding up what they say is a commonsense idea.

“This has been on the IRS to-do list for decades,” a visibly frustrated Warren said at one point.

But Republicans also frequently brought it up Wednesday— and were much more critical. They raised concerns that it would open new areas of possible abuse. They also questioned whether the IRS could even handle the process.

Werfel promised that he would return to Congress in the months ahead after the report is released in May before making any changes. Committee Republicans argued that Congress would likely have to pass a new bill before the IRS would even be allowed to act.

“Now we’re going to take our attention away from your core mission to transform the IRS and say we also want you to focus on this other big project?” Sen. Thom Tillis (R-NC) asked.

Ben Werschkul is Washington correspondent for Yahoo Finance.

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