A recent episode of the Federal Tax Updates podcast hosted by Roger Harris, and Annie Schwab, CPA, featured special guest Annette Nellen, a CPA, attorney, and professor at San Jose State University. Annette also serves on the IRS Advisory Council (IRSAC). During their conversation, they discussed the latest IRSAC report and the ongoing challenges and opportunities facing taxpayers, tax practitioners, and the IRS.
Long-Standing Issues in IRSAC Reports
The IRS Advisory Council issues an annual report presenting recommendations to the IRS Commissioner. Many topics tend to appear year after year:
- Funding. The IRS needs consistent and adequate funding to modernize systems and maintain an effective workforce.
- Tax gap. An estimated 15% of taxes go uncollected each year, representing over $600 billion in missed revenue.
- Technology. Outdated systems and limited resources make it difficult for the IRS to keep pace with private-sector technology.
These long-running themes reflect the complexity of the tax system and the difficulty in tackling problems that require both congressional action and agency-level commitment.
The Tax Gap and IRS Funding
The “tax gap” is the difference between what taxpayers owe and what the government actually collects. Studies show the IRS collects about 85% of total taxes owed, leaving a significant shortfall. Part of this gap stems from unintentional errors, while some is the result of intentional underreporting.
Annette points out that reliable funding is vital for the IRS to do its job properly. Without it, the IRS struggles to update technology, staff customer service lines, and enforce the law. As a result, honest taxpayers feel penalized when others don’t pay their fair share.
Funding changes also affect hiring. If the IRS can’t fill positions or keep employees from leaving, the progress made through better online systems and improved customer service might stall or even decline. Whether someone needs to speak with an agent by phone, send paper documents, or use online tools, funding shortfalls limit the help the IRS can provide.
Recent Progress: Online Accounts and Digital Tools
In recent years, increased funding allowed the IRS to improve its technology and online services. Some of those improvements include:
- Individual online accounts. Taxpayers can review notices, set up payment arrangements, and manage certain forms through a secure portal.
- Practitioner access. Tax professionals can handle powers of attorney and verify notice details, helping reduce scams and speeding up problem resolution.
- Business online accounts. Although still evolving, the goal is to have these accounts provide a similar range of digital services for businesses.
Annie notes that verifying IRS letters and notices through an online account has been a huge help for preventing tax scams. Confirming the legitimacy of an IRS notice can save taxpayers a lot of stress. However, the IRS still has some work to do to ensure all taxpayers—not just tech-savvy individuals—can access and use these tools.
Continuing Education and Regulating Tax Preparers
Annette highlighted a proposal in the IRSAC report to allow enrolled agents (EAs) to earn continuing education (CE) in practice management topics. Currently, EAs must focus almost entirely on tax-technical courses. Yet running a tax practice also involves data security, client communication, and office procedures—skills many practitioners say are just as vital to serving clients well.
Another recurring recommendation from both IRSAC and the National Taxpayer Advocate is for Congress to give the IRS the authority to regulate paid tax return preparers who are not otherwise credentialed. While attorneys, CPAs, and enrolled agents must meet strict standards, other paid preparers are not required to prove competence. Past court cases have halted the IRS’s prior attempts to regulate preparers, but IRSAC continues to urge action to protect taxpayers from inaccurate returns or fraud.
Challenges Ahead
The IRS has made real strides in shortening phone wait times and enhancing digital tools. However, possible budget cuts, workforce attrition, and the need for next-generation technology weigh heavily on the agency. Annette and Roger emphasize that stable funding, clear strategic priorities, and consistent leadership are essential to keep modernization on track.
For practitioners, it’s crucial to stay informed and flexible. More clients are comfortable working online, but some still prefer paper mail or phone calls. Being ready to serve both groups boosts efficiency and client trust.
The conversation is a great reminder that modernizing the IRS is a challenge that affects everyone. Taxpayers depend on reliable service, and practitioners depend on clear, efficient systems to help their clients. Meanwhile, the government needs fair and accurate tax collection to fund its programs.
When the IRS has the funding to improve its tools and adopt modern practices through online accounts, better phone support, and increased digital communication, these changes ease the stress of tax filing and ensure more consistent compliance.
To hear more details and get firsthand insight into IRSAC’s priorities, listen to the full discussion on Federal Tax Updates podcast episode featuring Annette Nellen.