The IRS has complied with the requirement to process business transcript requests electronically.

The Internal Revenue Service will not meet requirements under the Taxpayer First Act to create an online system to process electronic business transcript requests by January 2023, according to a new report.

of ReportIn a release Monday by the Treasury’s inspector general for tax administration, the IRS reviewed its efforts to update the Income Verification Express Service program, known as IVES, to ensure it complies with provisions included in the 2019 law. The Taxpayer First Act requires the IRS to make old technology more efficient and secure and provide better customer service, but the IRS has had long-standing problems with updating the system, some dating back to the 1960s, that have been difficult to overcome. The 2019 law was full of mandates for the IRS, but offered little in the way of additional funding.

Andrew Harrer/Bloomberg

The Inflation Relief Act passed by Congress last year gives the IRS an additional $80 billion in funding over 10 years, partly to improve technology and taxpayer services, but most of it is going toward enforcement.

One area where the IRS has been forced to improve its technology over the years is in handling tax transcript requests. In the year In 2015, a data breach in the IRS Get Transcript application resulted in the theft of tax return information of more than 300,000 taxpayers by cybercriminals.See history). The IRS had to close the application and It started again the next year With improved proof.

The IVES system, which is the subject of TIGTA’s report, is a separate system that is often used in conjunction with mortgage applications and other types of loans. As of 2011 IRSIt is used by lenders and others in the financial community to verify a borrower’s income during the loan application process. The IRS will release the return transcript, W-2 transcript, and 1099 transcript information to a third party within approximately two to three business days with the taxpayer’s consent.

The Taxpayer First Act aims to speed up the process by allowing electronic transcript requests, but the IRS still hasn’t met its goal of providing an online system by January of this year.

Once accepted into the IVES program, participants such as banks and financial institutions can submit requests on behalf of clients to obtain tax transcripts for individuals and businesses, TIGTA noted. To reduce the risk of releasing taxpayer information to unauthorized parties, the IRS must verify the accuracy of tax transcript request forms to ensure that taxpayers have signed the forms correctly. In fiscal year 2022, the IRS processed 8.3 million tax transcript request forms.

However, TIGTA does not meet the key requirements of Section 2201 of the IRS Taxpayer First Act and does not offer the ability to process business transcript requests in January 2023.

“While the Taxpayer First Act requires the IRS to create a new online system to process transcript requests, IRS management has not yet made a decision to require participants to use the new system,” the report said. “Until use of the modern IVES system is mandated, improved controls are needed for electronically faxed transcript requests so that transcripts are not provided to unauthorized individuals.”

In addition, TIGTA understands that not enough information is being provided to both participants and taxpayers. “For example, participants receive limited rejection information and are not notified of a pending transcript request that requires taxpayers to log into their online account to review and approve the request,” the report said.

TIGTA experienced significant processing delays. There is no single point of contact within the IRS responsible for resolving the outage of the new inventory management system that contributed to those delays. Instead of the IRS’s goal of processing transcript requests in 72 hours (or three days), transcripts can take up to 502 hours (or more than 22 days) to process.

Additionally, despite the 2015 data breach, the IRS continues to process transcript requests for taxpayers flagging identity theft on their accounts. TIGTA identified 7,619 tax returns that were improperly issued to 6,012 taxpayers participating in the 2021 IVES program. This is because internal IRS guidance did not ensure that employees followed the guidelines for not accepting these requests. “As a result, there is a risk of unauthorized disclosure of taxpayer information to unscrupulous individuals,” the report said.

TIGTA made 14 recommendations in its report to update and improve the IVES program, including concerns raised by IRS management during the review, such as ensuring business transcription capabilities for the development of a modern IVES system. The IRS has largely implemented TIGTA’s recommendations about the system in its previous report. In the new report, TIGTA recommended that the IRS put oversight in place to adequately verify all faxed transcript requests and assign responsibility for addressing and resolving future outages related to the new inventory management system.

IRS officials agreed to 11 of TIGTA’s 14 recommendations, including one recommendation to notify taxpayers whose partial refund requests were denied, but chose not to notify participants, citing an increased risk of fraud. Although the report’s authors believe they would improve the IRS’s oversight of electronic fax transcript requests and provide taxpayers with access to unauthorized tax return information, the IRS administration disagreed with the two TIGTA recommendations.

In response to the report, IRS Wage and Investment Division Commissioner Kenneth Corbin noted that the IRS made some improvements to the system in January, adding two new sections: the IVES Application Programming Interface and the Web-based User Interface. With the IVES API, a large number of program participants can use their own software to directly interface with the IVES system for transcription requests. The WebUI provides participants with a secure internet connection where they can submit online inquiries directly to the IVES program. Both were developed in response to the Taxpayer First Act, and it predicts that direct online access to IVES will be available by mid-2023.

“We are excited to move the IVES program into a fully integrated digital environment,” Corbin wrote. “Great strides have been made over the past two years in transitioning the program from paper to electronic processing.”