IRS Redesigning ‘Long and Difficult’ Notices to More Simple Version for Taxpayers

The effort will affect 170 million notices sent to individual taxpayers annually and over 40 million sent to businesses.

A sign outside the Internal Revenue Service building is seen in Washington on May 4, 2021. Patrick Semansky/AP Photo

The Internal Revenue Service (IRS) announced a “sweeping effort” on Tuesday aimed at simplifying and clarifying millions of letters it sends to taxpayers annually.

“The Simple Notice Initiative will review and redesign hundreds of notices with an immediate focus on the most common notices that individual taxpayers receive,” the IRS said in a Jan. 23 press release. “The IRS sends about 170 million notices to individual taxpayers every year, covering a range of issues from claiming the credits and deductions for which they are eligible for as well as meet their tax obligations. These notices are often long and difficult for taxpayers to understand. And they do not always clearly and concisely communicate the next steps a taxpayer must take.”

The new initiative is aimed at resolving these difficulties. The agency recently sent out redesigned identity theft letters, which it claims was a “successful pilot.” The Notice 5071C letter asks taxpayers to verify their identity and tax returns online or over the phone in order to prevent fraudulent tax returns from being processed.

IRS redesigned the letter by shortening it from the previous seven pages to two pages in the new version. Readability was improved with better fonts, visual enhancements like headers were used, and the agency also gave step-by-step instructions. A QR code was also added that directs taxpayers to the IRS webpage where they can respond to the letter.

The new version of Notice 5071C was sent to 60,000 taxpayers. According to the agency, the number of taxpayers who called the IRS as a first reaction reduced by 16 percent. There was also a 6 percent increase in taxpayers who used the online option.

“Simplifying and clarifying these letters will make it easier for taxpayers to understand the tax issues involved,” said IRS commissioner Danny Werfel. “This will help reduce questions and save headaches for taxpayers, the tax professional community, as well as the IRS.”

“Improving these letters is also critical to our internal operations at the IRS and an important part of our transformation efforts. Clearer letters can create a ripple effect, reducing taxpayer phone calls and visits and freeing up IRS staff to help others.”

IRS’ Simple Notice Initiative is part of the transformation work undertaken by the IRS with funding received from the Inflation Reduction Act.

The funding has been a point of contention between Republicans and Democrats. IRS received $80 billion in funds from the Act. However, Republicans succeeded in cutting it down to $60 billion last year during debt-ceiling negotiations with Democrats.

Whether the funding cuts will affect the Simple Notice Initiative is unknown. Earlier this month, Mr. Werfel said that even with reduced cuts, the IRS will be able to implement some of its plans.

Redesign Efforts

IRS’ redesign initiative will continue for the 2024 tax season and will “accelerate” during the 2025 and 2026 seasons, the agency said on Tuesday.

For the 2024 tax filing season, the IRS has reviewed and redesigned 31 notices. In 2022, the agency sent 20 million such notices.

“These include notices to taxpayers who served in combat zones that may be eligible for tax deferment, notices that remind a taxpayer that they may have unfiled returns, and notices that remind a taxpayer about their balance due and where they can go for assistance,” it said.

For 2025, the IRS will focus on the top 200 notices, making up 90 percent of the total notice volume sent to individual taxpayers. In 2022, around 150 million such notices were sent.

“These include notices to propose adjustments to a taxpayer’s income, payments, credits, and/or deductions, notices to correct mistakes on a taxpayer’s tax return, and notices to remind a taxpayer of taxes owed.”

During filing season 2026 and beyond, the IRS will review and redesign notices sent to business taxpayers and the less common notices sent to individual taxpayers. The tax agency sends more than 40 million notices to businesses annually.

“Until now, these letters have not been as taxpayer-friendly as they could be. They’ve been criticized as too long, filled with complex legal jargon, and difficult to understand. With the Simple Notice Initiative, redesigned notices will be shorter, clearer, and easier to understand,” Treasury Secretary Janet Yellen told reporters on Tuesday, according to Reuters.

“Taxpayers will see the difference when they open the mail and when they log into their online accounts,” she said.

Mr. Werfel stressed the need to make the letters have a “plain language,” something that a layperson can understand “without needing to hire a tax or legal professional.”

The Simple Notice Initiative builds on the Paperless Processing Initiative, which the IRS announced in August last year.

The paperless processing initiative is expected to “eliminate up to 200 million pieces of paper annually, cut processing times in half, and expedite refunds by several weeks,” the IRS said at the time.

Starting filing season 2024, taxpayers will be able to digitally submit all correspondence, non-tax forms, and responses to notices. As a result, over 94 percent of individual taxpayers will no longer have to send mail to the IRS, the agency estimates.

By implementing paperless processing, errors from manual input of data can be eliminated, thus speeding up processing and storage costs.