IRS makes progress on implementing Inflation Reduction Act

The Internal Revenue Service has been working hard to implement the dozens of tax provisions contained in last year’s Inflation Reduction Act, according to a new report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, noted that the legislation provides funding to the IRS to improve taxpayer services, update antiquated computer systems, and increase compliance and enforcement actions on segments of taxpayers with complex issues and complex  tax returns, such as large partnerships, large corporations, and high-income individuals.

The law has 36 tax provisions affecting individual and business taxpayers, and two more provisions related to IRS funding. It also includes 20 tax provisions that required the IRS to implement changes related to tax return processing for this year. The IRS needed to create or revise tax forms, instructions and publications, as well as update its computer programs to process tax returns affected by the provisions. The agency also had to communicate and offer guidance to taxpayers and tax professionals about the various tax law changes. 

TIGTA found that the IRS used several ways to immediately start tracking and implementing the 36 tax provisions. They included creating an implementation oversight office to work across the agency overseeing the implementation efforts. In addition, they created the IRA 2022 Tax Provision Implementation Office to oversee the efforts. 

Some 20 of the 36 tax provisions affect the filing of tax returns this year, and as of May 12, 2023, the IRS had created or revised 71 tax products related to those provisions. TIGTA’s review of those tax products found concerns with only the instructions for Form 720, “Quarterly Federal Excise Tax Return,” which contained incorrect manufacturer tax rates.

In addition, the tax provisions affecting this year required the IRS to create or modify 78 electronic filing business rules. TIGTA found concerns with only three business rules related to Form 8974, “Qualified Small Business Payroll Tax Credit for Increasing Research Activities,” which rejected some tax returns for reasons that were redacted from the report.

Actions are underway to implement 16 tax provisions of the IRA that take effect from 2024 through 2028.

“As of June 16, 2023, the IRS has identified 68 tax products affected for future processing years on these provisions, including 25 tax forms, 41 instructions, and two publications,” said the report. “This includes efforts to implement processing controls for the clean vehicle credits and elective payments for energy property and electricity produced from certain renewable resources.”  

TIGTA plans to continue monitoring implementation of those provisions next year. It recommended that the IRS should update its computer programming on the three business rules related to Form 8974. The IRS agreed with that recommendation and requested programming updates for implementation for the 2024 filing season.

“While much has been accomplished to date, additional work is needed to to prepare for Processing Year 2024 and beyond,” wrote Sharyn Fisk, project director of the IRS’s Tax Provision Implementation Office, in response to the report. “Many actions are already underway to timely implement the 16 tax provisions of the IRA that will become effective during Processing Years 2024 through 2028. As of July 21, 2023, we have identified 82 tax products affected in future processing years by these provisions, including 42 tax forms, 39 instructions and one publication. We have efforts underway to implement processing controls for the clean vehicle credits and elective payments for energy property and electricity produced from certain renewable resources.”