WASHINGTON — The Internal Revenue Service Electronic Tax Administration Advisory Committee (ETAAC) released its 2024 annual report today with a total of 12 recommendations – three to Congress and nine to the IRS. 

Among the recommendations to the IRS, the committee recommended enabling application programming interface access to taxpayer information, removing barriers to electronic filing by developing an alternative to the current self-select PIN as well as promoting greater information sharing between the IRS, states and industry partners. 

“ETAAC members serve as trusted advisors to the IRS on key issues of interest to tax administration and taxpayers,” said IRS Commissioner Danny Werfel. “The committee has helped on a variety of fronts to help improve tax administration. The IRS leadership team will carefully review the recommendations in this report.” 

The recommendations to Congress included a request for authority for IRS to regulate non-credentialed tax return preparers, support for effective tax administration through consistent, reliable funding of the IRS and greater funding for the National Taxpayer Advocate. 

The report was released today at a public meeting in Washington, D.C. 

At the session today releasing the report, IRS Deputy Commissioner Douglas O’Donnell thanked 11 members of the committee whose terms ended today: 

• Jared Ballew, vice president of government relations, Taxwell.
• Peter Barca, former secretary, Wisconsin Department of Revenue.
• Mark Godfrey, manager, digital tax administration and government services, Ernst & Young.
• Robert Grennes, commissioner, Indiana Department of Revenue.
• Jihan Jude, attorney, Trivergent Trust Company.
• Jonathan Lunardini, section manager, California Franchise Tax Board.
• James Paille, chief compliance officer, myPay Solutions, IRIS Worldwide.
• Hallie Parchman, senior manager of product management, Amazon.
• Andrew Phillips, director, H&R Block Tax Institute.
• Terri Steenblock, compliance director, Federation of Tax Administrators.
• Timur Tuluy, ETAAC Chair and founder, FileYourTaxes.com. 

About ETAAC

ETAAC members represent various segments of the tax community, including individual and business taxpayers, tax professionals and preparers, tax software developers, payroll service providers, the financial industry and state and local governments. 

The ETAAC operates under the rules of the Federal Advisory Committee Act. It works closely with the Security Summit, a joint effort of the IRS, state tax administrators and the nation's tax industry, established in 2015 to fight tax-related identity theft and cybercrime. 

For more information, visit: www.irs.gov/etaac.

WASHINGTON — The Internal Revenue Service Electronic Tax Administration Advisory Committee (ETAAC) released its 2024 annual report today with a total of 12 recommendations – three to Congress and nine to the IRS. 

Among the recommendations to the IRS, the committee recommended enabling application programming interface access to taxpayer information, removing barriers to electronic filing by developing an alternative to the current self-select PIN as well as promoting greater information sharing between the IRS, states and industry partners. 

“ETAAC members serve as trusted advisors to the IRS on key issues of interest to tax administration and taxpayers,” said IRS Commissioner Danny Werfel. “The committee has helped on a variety of fronts to help improve tax administration. The IRS leadership team will carefully review the recommendations in this report.” 

The recommendations to Congress included a request for authority for IRS to regulate non-credentialed tax return preparers, support for effective tax administration through consistent, reliable funding of the IRS and greater funding for the National Taxpayer Advocate. 

The report was released today at a public meeting in Washington, D.C. 

At the session today releasing the report, IRS Deputy Commissioner Douglas O’Donnell thanked 11 members of the committee whose terms ended today: 

• Jared Ballew, vice president of government relations, Taxwell.
• Peter Barca, former secretary, Wisconsin Department of Revenue.
• Mark Godfrey, manager, digital tax administration and government services, Ernst & Young.
• Robert Grennes, commissioner, Indiana Department of Revenue.
• Jihan Jude, attorney, Trivergent Trust Company.
• Jonathan Lunardini, section manager, California Franchise Tax Board.
• James Paille, chief compliance officer, myPay Solutions, IRIS Worldwide.
• Hallie Parchman, senior manager of product management, Amazon.
• Andrew Phillips, director, H&R Block Tax Institute.
• Terri Steenblock, compliance director, Federation of Tax Administrators.
• Timur Tuluy, ETAAC Chair and founder, FileYourTaxes.com. 

About ETAAC

ETAAC members represent various segments of the tax community, including individual and business taxpayers, tax professionals and preparers, tax software developers, payroll service providers, the financial industry and state and local governments. 

The ETAAC operates under the rules of the Federal Advisory Committee Act. It works closely with the Security Summit, a joint effort of the IRS, state tax administrators and the nation's tax industry, established in 2015 to fight tax-related identity theft and cybercrime. 

For more information, visit: www.irs.gov/etaac.

WASHINGTON — The Internal Revenue Service sincerely apologizes to Mr. Kenneth Griffin and the thousands of other Americans whose personal information was leaked to the press. 

Charles Littlejohn was a government contractor providing services to the IRS at the time he made the illegal disclosures. He violated the terms of his contract and betrayed the trust that the American people place in the IRS to safeguard their sensitive information. 

The IRS takes its responsibilities seriously and acknowledges that it failed to prevent Mr. Littlejohn’s criminal conduct and unlawful disclosure of Mr. Griffin’s confidential data. Accordingly, the IRS assures Mr. Griffin and the other victims of Mr. Littlejohn’s actions that it has made substantial investments in its data security to strengthen its safeguarding of taxpayer information. 

These investments address potential weaknesses in the IRS’s systems as identified by the Treasury Inspector General for Tax Administration (TIGTA), which provides independent oversight of the IRS. 

Additionally, the IRS continues, and will continue on a going-forward basis after this resolution, to work with TIGTA, the Government Accountability Office, other government agencies and independent third parties to assess the IRS’s systems for potential vulnerabilities. 

The IRS routinely reports to the Senate Committee on Finance and the House Committee on Ways and Means, which exercise Congressional oversight of the IRS, on its efforts to strengthen any security deficiencies identified by the IRS, TIGTA, GAO and third parties. 

The agency believes that its actions and the resolution of this case will result in a stronger and more trustworthy process for safeguarding the personal information of all taxpayers.

WASHINGTON — The Internal Revenue Service today announced the mailing of a time-limited settlement offer for certain taxpayers who participated in Syndicated Conservation Easements (SCE) and substantially similar transactions that are under audit in the IRS’s Large Business & International and Small Business and Self-Employed divisions. 

The IRS will notify eligible taxpayers by letter with the applicable terms and timelines to respond. The settlement offer requires substantial concession of the income tax benefits and the application of penalties. Taxpayers under examination who receive a letter but opt not to participate, will continue to face IRS enforcement actions, including potential full disallowance of charitable contributions associated with the SCE and the imposition of all applicable penalties.  

Taxpayers who don't receive a letter are not eligible for this resolution, and the IRS will continue enforcement-related actions. Taxpayers with cases pending in the United States Tax Court are not eligible for this settlement offer. 

Combatting abusive SCE transactions 

The IRS has consistently disallowed the tax benefits claimed by taxpayers in abusive SCE transactions, which have appeared on the IRS’s Dirty Dozen list of tax scams multiple times. 

The U.S. Tax Court has also issued many opinions, including the following: 

• Plateau Holdings, LLC v. Commissioner, T.C. Memo. 2020-93,
• TOT Property Holdings, LLC v. Commissioner, T.C. Docket No. 5600-17 (unpublished bench op., Nov. 22, 2019),
• Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129,
• Oconee Landing Property, LLC v. Commissioner, T.C. Memo. 2024-25,
• Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, and
• Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52) in which the true value of the easement was found to be a small fraction of the claimed value. 

In addition, there have been at least nine guilty pleas and two promoters found guilty and sentenced to 25 and 23 years in prison. 

In December 2022, Congress passed the SECURE 2.0 Act, which applies to contributions of property made after Dec. 29, 2022, to the help curb SCE abuse by limiting deductions for certain charitable contributions under Internal Revenue Code section 170. 

After careful consideration and input from external stakeholders, the IRS is taking this additional step of offering time-limited settlements in the interest of sound tax administration. The IRS encourages taxpayers and their advisors to carefully review the settlement offer. The settlement offer is the most effective and efficient way for taxpayers to bring finality to the transactions and achieve tax certainty.

WASHINGTON — National Taxpayer Advocate Erin M. Collins today released her statutorily mandated mid-year report to Congress. The report says the tax-return filing season generally ran smoothly this year, but it identifies delays in issuing refunds to identity theft victims, misleading telephone measures that lead to poor resource allocation decisions, and delays in processing Employee Retention Credit claims as key taxpayer challenges. The report also emphasizes the importance of technology upgrades as the IRS seeks to modernize its operations in the coming years. 

“For most taxpayers, the filing season is the only time they interact with the IRS,” Collins wrote. “After several years of abysmal taxpayer service during the COVID-19 pandemic, the IRS has now delivered two filing seasons that demonstrate the agency has restored service to pre-pandemic levels and has improved in most, but not all, areas of service. This is excellent news for most taxpayers.” 

Delays in resolving identity theft cases are burdening victims

When the IRS rejects a taxpayer’s return because an identity thief previously filed a fraudulent return using the taxpayer’s personal identifying information, the IRS freezes the second return so it can sort out which taxpayer is the legitimate one. The National Taxpayer Advocate’s 2023 Annual Report to Congress highlighted that the IRS was taking about 19 months to identify the legitimate taxpayers and issue their refunds. As of September 30, 2023, there were about 484,000 cases in inventory. Notably, 69% of taxpayers whose cases the IRS resolved had adjusted gross incomes at or below 250% of the Federal Poverty Level. Many of those taxpayers qualify for refundable credits and need their refunds promptly to pay their living expenses. 

Since that time, the delays have worsened. 

As of April 2024, the IRS was taking more than 22 months to resolve identity theft victims’ assistance cases, plus several weeks to issue refunds, and it had approximately 500,000 unresolved cases in its inventory.   

Collins called the delays “unconscionable” in her prior report, and she reiterated that concern in this report. “Delays of nearly two years make a mockery of the right to quality service in the Taxpayer Bill of Rights,” Collins wrote. “The IRS must prioritize assistance for these victims and fix this problem quickly.” 

Misleading telephone measures lead to poor resource allocation decisions

The Treasury Department and the IRS have established the “Accounts Management (AM) Customer Service Representative Level of Service (LOS)” as the agency’s principal and most widely cited measure of taxpayer service. For the past two filing seasons, they set a goal of achieving an LOS of at least 85%, and they succeeded. This year, the IRS achieved an LOS of 88%. 

The report praised the IRS for improved telephone service but criticized its reliance on the LOS measure. “In my opinion, the AM LOS measure has taken on outsized importance in recent years, as the IRS has allocated resources to hit ambitious but arbitrary goals that mean less than meets the eye and that consequently have required the IRS to neglect calls to non-AM telephone lines and workstreams like paper correspondence that I believe should receive higher priority,” Collins wrote. “The measure is causing the IRS to prioritize the wrong work, and it needs to be replaced.” 

Among the weaknesses of the LOS measure: 

The 88% LOS leaves many observers with the impression that IRS employees answered 88% of taxpayer calls. In fact, IRS employees answered only 31% of taxpayer calls. 

During the 2024 filing season, the IRS routed about 10.3 million calls to AM employees, and they answered about 9.0 million, producing an LOS of 88 percent.  But for context, the IRS received about 39.9 million calls.  Therefore, the 10.3 million calls included in the AM LOS calculation represented just over 25 percent of the calls the IRS received.  The other 75 percent consisted of calls routed to non-AM telephone lines, calls in which the taxpayer disconnected before being placed in a calling queue, and calls routed for automated responses. 

The IRS classifies many of its telephone lines as “Accounts Management” (AM) lines, but it excludes many of its telephone lines from the AM calculation. In contrast to the LOS of 88% on the AM lines, the LOS on non-AM lines was 36% during the filing season. 

Figure 1, IRS Telephone Results for the 2024 Filing Season

Telephone lines	Calls received	Number of calls answered by an IRS e	Percentage of calls answered by an IRS employee	Level of service	Time on hold
All calls	40 mil	12.4 mil	31%	63%	8 min
Accounts Management	28 mil	9.0 mil	32%	88%	3 min
Non-Accounts Management	12 mil	3.4 mil	29%	36%	21 min

Callers to non-AM telephone lines who received substantially lower levels of service include: 

• 3.7 million taxpayers who called the Installment Agreement/Balance Due line to make payment arrangements or otherwise resolve their tax debts (42% of calls were answered with a 23-minute wait time); 

• 3.0 million taxpayers who called the Taxpayer Protection Program telephone line because IRS filters had suspended the processing of their returns on suspicion of identity theft, and they needed to authenticate their identities to receive their refunds (16% of calls were answered with a 20-minute wait time); and 

• 2.1 million taxpayers who called the IRS’s Automated Collection System telephone line after receiving a collection notice and who may have needed urgent help getting a levy released to alleviate an economic hardship (19% of calls were answered with a 10-minute wait time).  

“One would expect a caller facing eviction because an IRS levy is leaving her unable to pay her rent would receive priority over a caller requesting an account transcript,” the report says. “But because the IRS’s benchmark LOS measure is based solely on the percentage of calls it answers on the AM telephone lines, the agency places a lower priority on calls that don’t factor into the benchmark LOS calculation.” 

Figure 2 shows key metrics for the 10 most frequently called telephone lines during the 2024 filing season: 

Figure 2, Metrics for the 10 Most Frequently Called Telephone Lines for the 2024 Filing Season

Telephone line	Calls received	Number of calls answered by an IRS employee	Percentage of calls answered by an IRS employee	Level of service	Time on hold
Refund Hotline	8.3 mil	80,000	1%	77%	6 min
Individual Income Tax Services	6.9 mil	2,100,000	30%	87%	4 min
Installment Agreement / Balance Due	3.7 mil	1,600,000	42%	42%	23 min
Taxpayer Protection Program	3.0 mil	486,000	16%	17%	20 min
Taxpayer Assistance Center Appointments	2.4 mil	1,300,000	52%	86%	4 min
Automated Collection System	2.1 mil	408,000	19%	33%	10 min
Business and Specialty Tax Services	2.0 mil	1,200,000	59%	90%	4 min
Wage and Investment (W&I) Identity Theft	1.4 mil	598,000	43%	78%	4 min
Practitioner Priority Service	1.1 mil	973,000	85%	95%	2 min
W&I Individual Master File Customer Response	1.0 mil	329,000	31%	85%	4 min

In addition to answering telephone calls, AM employees process identity theft victims’ assistance cases, taxpayer correspondence, and amended tax returns. To achieve an AM LOS of 85%, the IRS overstaffs AM telephone lines, leading to unproductive employee time and neglect of other priority work. 

To achieve its 85% LOS goal, the IRS must staff its telephone lines so there are enough employees to handle peak call periods. But that means that during quiet periods, AM employees are “sitting around waiting for the phone to ring,” the report says.  

During the 2024 filing season, AM employees spent 1.1 million hours (29% of their time) waiting to receive calls.  

The report says those hours represented “unproductive employee time that could have been spent processing taxpayer correspondence and amended returns” as well as resolving identity theft victims’ assistance cases. The report notes that the increase in the LOS from 85% during the 2023 filing season to 88% during the 2024 filing season corresponded with the increased time required to resolve identity theft victims’ assistance cases and an increase in overaged correspondence from 61% at the end of the 2023 filing season to 66% at the end of this year’s filing season. 

“We need to keep in mind that backlogs in processing tax returns and taxpayer correspondence drive much of the phone volume,” Collins wrote. “For the 2025 filing season, I encourage the IRS to prioritize reducing its paper processing backlog, even if that means somewhat reducing the telephone LOS, especially given the inaccurate and misleading picture the LOS paints.” 

The AM LOS only measures the percentage of certain calls answered – not whether the IRS was able to resolve the taxpayer’s problem. 

The report says a primary telephone measure should focus on problem resolution. “Private sector telephone call centers often use measures like ‘first-contact resolution’ to assess whether they have resolved the caller’s problem or whether it remains outstanding. The IRS should be measuring outcomes at least as much as it measures the ability to get through.” The Taxpayer Advocate Service (TAS) is currently conducting a study to ascertain the metrics that businesses and other government agencies with large call centers use to evaluate their performance and plans to publish the results of the study in the National Taxpayer Advocate’s 2024 Annual Report to Congress. 

Delays in processing Employee Retention Credit (ERC) claims are burdening businesses

The IRS currently has a backlog of about 1.4 million ERC claims that have been submitted but have not been paid. On September 14, 2023, the IRS imposed a moratorium on the processing of new claims and substantially slowed the processing of pending claims due to concern that a high percentage of claims may be non-qualifying. 

“The IRS is between the proverbial rock and a hard place when it comes to ERC claims,” Collins said in releasing the report. “If it pays out ERC claims without adequate review, improper payments may be in the tens of billions of dollars. If it declines to pay ERC claims or delays payments further, the very businesses for which Congress created the ERC will be harmed again.” 

The report says that “many [businesses] have already waited a year or longer for the IRS to determine if their claim is valid.”  

The report adds: “It’s time for the IRS to … move forward addressing these ERC claims to ensure it protects the taxpayer’s right to finality and right to challenge the IRS’s position and be heard.” Collins plans to work with the IRS leadership in the coming weeks to try to accelerate the processing of eligible claims, including several thousand cases pending in TAS.   

Using Inflation Reduction Act funding to improve the taxpayer experience

The report addresses the IRS’s Strategic Operating Plan priorities to utilize the funding the agency received under the Inflation Reduction Act (IRA). Of the roughly $79 billion in IRA funding the IRS originally received (since reduced to $58 billion), only $3.2 billion was allocated for Taxpayer Services and only $4.8 billion was allocated for Business Systems Modernization (BSM). The IRS has projected it will run out of IRA funding for the Taxpayer Services and BSM accounts in fiscal year (FY) 2026. In the report, Collins reiterates her prior recommendation that Congress reallocate, or authorize the IRS to move, funds from the Enforcement account to the Taxpayer Services and BSM accounts. 

“When I look back eight years from now on how the IRS spent its Inflation Reduction Act funding,” Collins wrote, “the changes I consider ‘transformational’ will primarily involve the deployment of new technology and innovative thinking.” 

The report notes the improvements the IRS has made in taxpayer services and cites numerous examples of critical technology needs, including enhanced online taxpayer accounts, digital scanning of paper-filed tax returns, more detailed and up-to-date information on the Where’s My Refund? and Where’s My Amended Return? tools, replacement of the agency’s roughly 60 case management systems that don’t communicate with each other with an integrated system, and replacement of core technology systems that still run on Assembly Language Code and COBOL. 

“While opinions about the large boost in Enforcement funding have varied, I have yet to hear a Member of Congress oppose the additional funding provided for Taxpayer Services or IT modernization,” Collins wrote.  

“I encourage Members to ensure that taxpayer services and technology modernization – the truly ‘transformational’ component of the IRS’s Strategic Operating Plan – are adequately funded to meet the needs of the taxpaying public and to conduct regular congressional oversight to ensure the funding is well spent.” 

Taxpayer Advocate Service objectives for FY 2025

As required by law, the report identifies TAS’s key objectives for the upcoming fiscal year. The report describes 11 systemic advocacy objectives, five case advocacy and other business objectives, and four research objectives. Among the objectives the report identifies are the following: 

• Modernize IRS processing to increase efficiency and improve the taxpayer experience. In August 2023, the IRS announced the launch of a Paperless Processing Initiative. The report praises the initiative and points out key areas where progress can be made. Currently, most paper-filed Forms 1040 are still manually transcribed. Some taxpayers who want to e-file their returns can’t do so because they are required to submit forms or schedules that the IRS’s e-file platform still doesn’t support. In addition, the IRS has created a “Document Upload Tool” that allows taxpayers to submit responses to IRS notices through a portal, but once received, the IRS still processes the responses as if they were submitted on paper. TAS plans to monitor implementation of the Paperless Processing Initiative to ensure it meets taxpayer needs, and Collins also recommends the IRS change its policy of rejecting e-filed returns with certain defects, because affected taxpayers must then paper-file their returns, creating additional burden for taxpayers and the IRS alike. 

• Improve IRS employee hiring, recruitment, retention, and training processes. The report notes that an estimated 37% of the IRS workforce is already eligible to retire or will become eligible to retire within the next five years. A high rate of retirements, particularly at the management level, will lead to a “brain drain” that the IRS must be prepared to address. The IRS is also hiring additional employees with its IRA funding, and these new hires must receive proper training to perform their jobs effectively. TAS plans to analyze the IRS’s hiring and recruitment strategies to help the IRS improve its hiring, recruitment, and training processes and make recommendations to improve employee retention strategies to reduce employee turnover. 

• Enhance IRS transparency by improving applicable technology, sufficiently explaining modernization progress, and providing straightforward guidance on tax law. According to the report, the IRS should do a better job of “providing taxpayers, tax professionals, industry, and other stakeholders with all the information to which they’re entitled, when they need it, in an accessible, clear, and sufficiently detailed way.” The report favorably cites IRS technology modernization goals of providing taxpayers with “instant account updates, faster refund processing and payment posting, and near real-time status updates” and giving IRS telephone assistors streamlined access to the taxpayer data they need to respond to taxpayer questions with specificity and detail. Through its membership on cross-functional IRS teams, TAS will continue to advocate for the IRS to provide specific details on its progress toward achieving its goals and produce clear and timely guidance and information to taxpayers, tax professionals, industry, and other stakeholders. 

IRS responses to National Taxpayer Advocate administrative recommendations

The National Taxpayer Advocate is required by statute to submit a year-end report to Congress that, among other things, makes administrative recommendations to resolve taxpayer problems. Internal Revenue Code § 7803(c)(3) authorizes the National Taxpayer Advocate to submit the administrative recommendations to the Commissioner and requires the IRS to respond within three months. 

The National Taxpayer Advocate made 78 administrative recommendations in her 2023 year-end report and then submitted them to the Commissioner for response. The IRS has agreed to implement 62 (or 79%) of the recommendations in full or in part. 

TAS will publish the IRS’s responses next month on the TAS website. 

*            *            *            *            *            *            * 

The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires the reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report must include a discussion of the 10 most serious problems encountered by taxpayers, identify the 10 tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems. 

The National Taxpayer Advocate blogs about key issues in tax administration. Individuals may subscribe to the blog and read past blogs. 

For media inquiries, please contact TAS Media Relations at TAS.media@irs.gov or call the media line at (202) 317-6802. 

About the Taxpayer Advocate Service

TAS is an independent organization within the IRS. TAS helps taxpayers resolve problems with the IRS, makes administrative and legislative recommendations to prevent or correct the problems, and protects taxpayer rights. 

To contact TAS, visit Taxpayer Advocate Service; check your local directory; or call TAS toll-free at 877-777-4778. To get help any time with general tax topics or to learn more about the Taxpayer Bill of Rights, visit Twitter.com/YourVoiceatIRS. Get updates on tax topics at facebook.com/YourVoiceAtIRS, Twitter.com/YourVoiceatIRS, linkedin.com/company/taxpayer-advocate-service, and YouTube.com/TASNTA.

Announcement 2024-06 provides notice of the partial suspension of the U.S.-Russia tax treaty. 

Announcement 2024-06 will be in IRB:  2024-27, dated July 1, 2024.

Revenue Ruling 2024-13 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274.  

The rates are published monthly for purposes of sections 42, 382, 412, 642, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code. 

Revenue Ruling 2024-13 will be in IRB:  2024-28, dated July 8, 2024.

WASHINGTON — The Department of the Treasury and the Internal Revenue Service issued final regulations today on the prevailing wage and apprenticeship (PWA) requirements related to increased credit or deduction amounts for certain clean energy incentives, enacted as a part of the Inflation Reduction Act (IRA). 

The IRA provides increased credit or deduction amounts for taxpayers who satisfy certain PWA requirements regarding the construction, alteration or repair of certain clean energy facilities or properties, projects or equipment. By satisfying the PWA requirements, taxpayers can generally increase the base amount of the credit or deduction by five times. 

“The increased credit or deduction for taxpayers meeting prevailing wage and apprenticeship requirements creates opportunities for both workers and employers,” IRS Commissioner Danny Werfel said. “The IRS is committed to ensuring that taxpayers claiming the clean energy credits comply with all of the applicable prevailing wage and apprenticeship requirements. The additional resources the IRS has received are making a difference for our efforts to ramp up taxpayer service and enforcement, and we will continue to build on these improvements.” 

To qualify for the PWA increased credit or deduction amounts, taxpayers generally need to: 

• Ensure that laborers and mechanics employed in the construction, alteration or repair of the facility or property, project or equipment are paid wages at rates not less than applicable prevailing wage rates.
• Meet certain requirements related to employing qualified apprentices from registered apprenticeship programs.
• Meet specific recordkeeping and reporting requirements. 

The PWA requirements apply to all contractors and subcontractors of the taxpayer who employ laborers and mechanics in construction, alteration or repair work. However, taxpayers claiming the increased credit or deduction are solely responsible for ensuring that the PWA requirements are satisfied. 

Ensuring that taxpayers claiming the PWA increased credit or deduction amounts have met the requirements – along with enforcing the requirements for other clean energy tax credits – is a top priority for the IRS. In the months ahead, the IRS will dedicate significant resources to promoting and enforcing compliance with the final clean energy rules.  

The IRS is committed to working with taxpayers, their advisors and other stakeholders to ensure compliance, including conducting appropriate education and outreach. The IRA funding will support efforts for effective tax administration of these novel and cross-cutting provisions.  

As part of this effort, the IRS also released Publication 5983, IRA Prevailing Wage and Apprenticeship Requirements Fact Sheet updated Publication 5855, IRA Prevailing Wage & Registered Apprenticeship Overview and the Prevailing wage and apprenticeship frequently asked questions. 

Publication 5855 provides a summary of the PWA requirements. The frequently asked questions provide more details about the PWA requirements and information for how to alert the IRS of suspected tax violations related to the PWA requirements. The IRS takes referrals of alleged tax violations seriously and may use the information received about potential violations in connection with any applicable audit.  

The PWA provisions include a significant penalty framework for failures to meet the PWA requirements. The penalty structure is intended to create incentives for real-time compliance with the PWA requirements.  

Given the potential increased credit or deduction amounts available under the PWA provisions and the significant penalties at stake, taxpayers should consider establishing frameworks to support timely compliance with the PWA requirements, including the associated reporting and recordkeeping requirements. To minimize the potential for mistakes and significant penalties, taxpayers who know they intend to claim an increased credit or deduction amount through satisfaction of the PWA requirements should proactively take steps to position their project for compliance with the PWA requirements.  

These steps could include, but would not necessarily be limited to: 

• Regularly reviewing payroll records.
• Ensuring all contracts require that contractors and their subcontractors adhere to PWA requirements.
• Regularly reviewing the classifications of laborers and mechanics, prevailing wage rates, and percentage of labor hours to be performed by qualified apprentices.
• Posting information about prevailing wage rates in a prominent and accessible location or otherwise providing written notice of prevailing wage rates to laborers and mechanics during construction, alteration, and repair work.
• Establishing procedures for individuals to report suspected failures to comply with the PWA requirements without fear of retaliation or adverse action.
• Investigating reports of suspected failures to comply with the PWA requirements.
• Contacting the Department of Labor’s Office of Apprenticeship or the relevant state apprenticeship agency for assistance in locating registered apprenticeship programs. 

The U.S. Department of Labor (DOL) determines the applicable prevailing wage rates for each classification of laborers and mechanics in a prescribed geographic area for a particular type of construction. For more information about prevailing wage rates please visit the Department of Labor's website. 

To support the IRS’s efforts in ensuring taxpayer compliance with the PWA requirements, DOL and the IRS are working on a Memorandum of Understanding (MOU) to be signed by the end of the year. Harnessing DOL’s extensive prevailing wage and registered apprenticeship expertise, the MOU will facilitate joint and cooperative education and public outreach and development of training content for IRS examination personnel. The MOU will also facilitate DOL’s review and comment as part of the development of PWA tax forms. Finally, the MOU will formalize a process for DOL to share with the IRS any credible tips or information that DOL receives as to potential noncompliance with the PWA requirements. 

More information can be found on the Inflation Reduction Act of 2022 page on IRS.gov.

This fact sheet provides answers to frequently asked questions (FAQs) related to educational assistance programs under section 127 of the Internal Revenue Code (Code) (a section 127 educational assistance program).

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so.

More information about reliance is available. These FAQs were announced in IR-2024-167.

Background on educational assistance programs

You may exclude certain educational assistance benefits from your gross income if they are provided under a section 127 educational assistance program. That means that you won’t have to pay any tax on the amount of benefits up to $5,250 per calendar year and your employer should not include the benefits with your wages, tips and other compensation shown in box 1 of your Form W-2. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit. If any benefits are received under a program that does not comply with section 127 or if the benefits are over $5,250, the amounts may be excluded under section 117 or deducted under section 162 or section 212 if the requirements of such section are satisfied.

Amounts paid under a section 127 educational assistance program are generally deductible by the employer as a business expense under section 162.

Questions and answers on educational assistance programs

Q1. What is an educational assistance program?

A1. An educational assistance program is a separate written plan of an employer for the exclusive benefit of its employees to provide employees with educational assistance.

To qualify as a section 127 educational assistance program, the plan must be written, and it must meet certain other requirements. Your employer can tell you whether there is a section 127 educational assistance program where you work.

A sample plan for employers is available. An employer may tailor its plan to include, for example, conditions for eligibility, when an employee’s participation in the plan begins and prorated benefits for part-time employees. However, a program cannot discriminate in favor of officers, shareholders, self-employed or highly compensated employees in requirements relating to eligibility for benefits.

Q2. What are educational assistance benefits?

A2. Tax-free educational assistance benefits under a section 127 educational assistance program include payments for tuition, fees and similar expenses, books, supplies and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses.

Tax-free educational assistance benefits also include principal or interest payments on qualified education loans (as defined in section 221(d)(1) of the Code). Section 127 requires that such loans be incurred by the employee for the education of the employee and not for the education of a family member such as a spouse or dependent. These payments must be made by the employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation). The payments of any qualified education loan can be made directly to a third party such as an educational provider or loan servicer or directly to the employee, and it does not matter when the qualified education loan was incurred. A qualified education loan is generally the same as a qualified student loan. See Qualified Student Loan in Chapter 4 of Publication 970, Tax Benefits for Education. 

Educational assistance benefits do not include payments for the following items:

• Meals, lodging or transportation.
• Tools or supplies (other than textbooks) that you can keep after completing the course of instruction (for example, educational assistance does not include payments for a computer or laptop that you keep).
• Courses involving sports, games or hobbies unless they:
• • Have a reasonable relationship to the business of your employer, or
  • Are required as part of a degree program.

An employer may choose to provide some or all of the educational assistance described above. The terms of the plan may limit the types of assistance provided to employees.

Q3. What is the total amount that an employee can exclude from gross income under section 127 of the Code per year?

A3. Under section 127, the total amount that an employee can exclude from gross income for payments of principal or interest on qualified education loans and other educational assistance combined is $5,250 per calendar year. For example, if an employer pays $2,000 of principal or interest on any qualified education loan incurred by the employee for the education of the employee, only $3,250 is available for other educational assistance.

The annual limit applies to amounts paid and expenses incurred by the employer during a calendar year. If an employee seeks reimbursement for expenses incurred, the expenses must be paid by the employee in the same calendar year for which reimbursement is made by the employer, and the expenses must not have been incurred prior to employment (however, qualified education loans may be incurred by the employee in prior calendar years and prior to employment, and payments of principal and interest may be made by the employer in a subsequent year). “Unused” amounts of the $5,250 annual limit cannot be carried forward to subsequent years.

Q4. What is a qualified education loan?

A4. A qualified education loan (as defined in section 221(d)(1)) is a loan for education at an eligible educational institution. Eligible educational institutions include any college, university, vocational school or other postsecondary educational institution as defined in sections 221(d)(2) and 25A(f)(2). The Department of Education determines whether an organization is an eligible education institution. A loan does not have to be issued or guaranteed under a Federal postsecondary education loan program to be a qualified education loan.

Q5. How can payments of qualified education loans be made?

A5. In the case of payments made after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), depending on how a particular employer has designed its section 127 educational assistance program, an employer may provide payments of principal or interest on an employee’s qualified education loans (as defined in section 221(d)(1) of the Code) for the employee’s own education directly to a third party such as an educational provider or loan servicer, or make payments directly to the employee.

Generally, the payment by an employer of principal or interest on any qualified education loan incurred by the employee for the education of the employee under section 127(c)(1)(B) is only available if an employer amends the terms of its plan to include the benefit. If the plan is currently written to provide generally for all benefits provided under section 127, then it is possible that the plan would not need to be amended to provide for the qualified education loan benefit under section 127(c)(1)(B). 

Q6. Are employer payments of qualified education loans for spouses and dependents excluded from gross income under section 127 of the Code?

A6. Under section 127 of the Code, an educational assistance program must be provided for the exclusive benefit of employees. A program that provides benefits to the spouse or dependents (as defined in section 152) of an employee is not a section 127 educational assistance program. Spouses and dependents of employees who are also employees, or spouses and dependents of owners who are also employees, may receive benefits under the program, but they are subject to a rule that prohibits discrimination in favor of these employees in requirements relating to eligibility for benefits, and to a rule that limits the benefits that may be provided to them under the program to 5 percent of the benefits under the program.

Section 127 provides an exclusion from gross income for loan payments made by an employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), on a qualified education loan incurred by the employee for the employee’s own education. Thus, a payment of principal or interest by the employer on a loan incurred by an employee for the education of the employee’s spouse or dependent may not be excluded from the employee’s gross income. In addition, a payment by the employer on a loan incurred by the parent of an employee for the education of the employee may not be excluded from the parent’s or the employee’s gross income.

Q7. Can student debt be reimbursed under a section 127 educational assistance program?

A7. Student debt may consist of a variety of expenses. If the debt was incurred as a result of expenses that are permissible benefits under section 127 of the Code (such as tuition, books, equipment, qualified education loans (in the case of payments made before January 1, 2026 (unless extended by future legislation)), etc.), the employer may reimburse the employee for these expenses as educational assistance benefits, and the employee could then use those funds to help satisfy his or her debt. To be excluded from the employee’s gross income, the employee must be prepared to substantiate the expenses to the employer.

Q8. Can self-employed individuals, shareholders and owners receive educational assistance under a section 127 educational assistance program?

A8. While there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under section 127 of the Code and Treasury Regulation § 1.127-2, including not being discriminatory in favor of employees who are highly compensated employees.

An individual who is self-employed within the meaning of section 401(c)(1) may receive educational assistance. While shareholders and owners may receive educational assistance, not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.  

As a practical matter, if the owners are the only employees, they cannot receive educational assistance under section 127 because of the 5 percent benefit limitation described above. The following formula can be used to determine the amount of educational assistance that an owner/employee can receive: [total amount of educational assistance provided to employees other than the owner/employee] x .05263158 = [amount of educational assistance that the owner/employee can receive (rounded down to two decimal places but not greater than $5,250)].

Q9. Are there other exclusions from gross income for educational assistance?  

A9. Working condition fringe benefit: If the benefits qualify as a working condition fringe benefit, regardless of amount, they are excluded from your gross income and your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in section 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

Educator expense deduction: In 2023, educators can deduct up to $300 ($600 if married filing jointly and both spouses are eligible educators, but not more than $300 each) of unreimbursed business expenses. The educator expense deduction, claimed on Form 1040 Line 11, is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

For additional IRS resources 

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