The IRS is understaffed, yet taxpayers are receiving a flurry of notices demanding payments, proposing audits, or flagging discrepancies. This aggressive approach seems counterintuitive, given the agency’s limited resources. Understanding why this happens can help you navigate these notices with less stress and more clarity.
Automated Systems Drive the High Volume of Notices
The IRS largely relies upon automated systems to detect inconsistencies in the tax filings it receives. These systems compare reported income, deductions, and credits with third-party data, such as W-2s or 1099s. If there is a mismatch, the discrepancy can be flagged with practically zero human intervention.
The IRS processed over 150 million returns last year. The IRS’s automation system enabled it to issue millions of notices despite a significant drop in staffing levels. Counterintuitively, understaffing may lead to more notices. This is because there are fewer humans working to catch false positives. Additionally, less staff means more reliance on automation.
Notices are an Easy Way to Clear the Backlog
Years of budget cuts have resulted in the IRS having a behemoth of a backlog. Sending automated notices requires practically zero human effort. Even if only a small percentage of people pay, it is still a net positive for the IRS. For example, a single notice prompting a taxpayer to settle a $5,000 debt can resolve the issue without costly audits. From the IRS’s perspective, they can collect thousands of dollars for the cost of a few postage stamps.
Congressional Pressure Fuels Action
With the federal government’s overall spending increasing year after year, the IRS is under pressure to collect more while spending less. Notices are a low-cost way to demonstrate enforcement activity. It is very easy to send out thousands of notices, especially compared to conducting thousands of audits.
What Should You Do?
Receiving an IRS notice can feel daunting, but ignoring it will not help. Review the notice carefully, understand the issues the IRS is raising, and respond promptly with documents that support your side of the issue. If the notice is unclear or the debt unmanageable, professional help can make a difference.
For experienced guidance on handling IRS notices, contact Highland Tax Resolution today. Our team assists taxpayers in working with the IRS to resolve the issue at hand. We do a deep dive into your finances to make sure your best interest is protected.