Taxpayer Advocate Raises Concerns for 2022 Tax Season, Urges IRS Funding
In her 2021 Annual Report to Congress, the National Taxpayer Advocate Erin M. Collins referred to calendar year 2021 as the most challenging year ever for taxpayers and tax professionals and credits the Internal Revenue Service (IRS) for performing well under difficult circumstances. Accordingly, the report reiterates the longstanding recommendation of the Taxpayer Advocate Service (TAS) that Congress provide the IRS with sufficient funding to serve taxpayers well.
"Processing delays translated directly into refund delays," stated the report, estimating that tens of millions of taxpayers experienced delays in processing their returns.
In addition to performing its traditional duties, the IRS has implemented several programs enacted by Congress since the pandemic began. Among other things, the IRS has issued 478 million Economic Impact Payments (EIP)—totaling $812 billion—and has sent Advance Child Tax Credit (AdvCTC) payments to over 36 million families—totaling over $93 billion.
“Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working nonstop these past several months to prepare,” stated IRS Commissioner Chuck Rettig, “The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don’t face processing delays.”
Collins indicates there has never been a greater imbalance between the IRS's workload and its resources. The IRS' workforce has decreased by 17 percent since FY 2010, while the workload has increased by 19 percent, as measured by the number of individual tax returns filed.
In late December, the IRS had a backlog of 6 million unprocessed original individual income tax returns (Forms 1040), 2.3 million unprocessed amended individual income tax returns (Forms 1040-X), over 2 million unprocessed employer's quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence. Some of these submissions dating back to April and many taxpayers still waiting for refunds nine months later.
Even though e-filed returns performed better than paper returns, the report states that millions of e-filed returns were suspended during processing due to discrepancies between amounts claimed on the returns and amounts reflected on IRS records. In most cases, these discrepancies relate to Recovery Rebate Credit (RRC) claims by taxpayers who did not receive all or some of their stimulus payments as EIPs the previous year. A manual review of these returns was required, and the IRS issued more than 11 million math error notices to taxpayers over discrepancies between RRC records and IRS records. When a taxpayer disagreed with a math error notice and submitted a response, the taxpayer's response went into the IRS's backlog of paper processing, which further delayed the refund. Congress authorized two advance tax credits in March, which may cause additional discrepancies between amounts claimed on tax returns and in IRS records.
The TAS estimates the number of returns that need to be processed manually will likely increase again in 2022.
Process delays led to cascades of customer service issues, including:
IRS.gov's Where's My Refund tool failed taxpayers on a few fronts: taxpayers used IRS.gov more than 632 million times to check refund status last year, but the tool does not give information on unprocessed returns, nor does it explain any status delays, the reasons for delays, where returns stand in the processing pipeline, or what actions taxpayers need to take, if any.
Telephone service reached a new low: call volumes nearly tripled from the prior year due to processing delays and questions about new programs. Of those calls, customer service representatives were only able to answer 32 million calls made by taxpayers. Consequently, most callers were unable to obtain answers to their questions.
Respondents to IRS notices took months to process, further delaying refunds: taxpayers received tens of millions of IRS notices in 2021, including requesting the authenticating of a taxpayer's identity once IRS filters flagged a return as potentially fraudulent, correspondence examination notices, and collection notices. In many cases, taxpayer responses were necessary as the IRS could not release a refund if the notice went unanswered.
The Taxpayer Advocate provided the IRS with some suggestions for resolving taxpayer issues, including:
Reduce barriers to e-filing by utilizing scanning technology: as many state tax agencies have been doing for more than ten years, the IRS could reduce its backlog of paper tax returns by scanning and reading them. Reducing the need for IRS employees to manually transcribe data from paper returns would help reduce the backlog and transcription errors that result in math error notices and refund delays.
Deploy customer callback technology on all telephone lines: customer callback technology alone would not be able to handle the 250 million unanswered calls in the IRS received last year; however, many taxpayers call the IRS more than once before they get through, and, if effectively implemented, customer callback technology could drastically reduce the number of repeated calls.
Enhance online taxpayer accounts, allow taxpayers to email the IRS: Taxpayers who conduct comparable transactions with financial institutions have been unable to contact the IRS electronically because of limitations, which results in more telephone calls and written correspondence arriving at the IRS.
Publish a weekly dashboard on IRS.gov containing information about delays: TAS recommends that the IRS post a dashboard for filing season that lists each category of work and the length of time it is taking to complete it, updated at least weekly. The recommendation suggests the dashboard should include how long it takes the IRS to process original paper tax returns and amended paper tax returns, how long it takes to correct math errors and other taxpayer correspondence by category, and how many taxpayers spoke to an IRS employee the week before.
Chad Hooper, Executive Director of the Professional Managers Association, said the IRS has streamlined some operations, but that its workload continues to exceed the capacity of the IRS’ shrinking workforce. He noted that the IRS used to have teams dedicated to replying to letters and answering the telephone, but the service's workforce and dwindling budget have depleted to the point where managers must select which of these essential tasks to prioritize.
“The National Taxpayer Advocate’s 2021 Annual Report to Congress provides no new information regarding the agency’s struggles. The Taxpayer Advocate, the Treasury Inspector General for Tax Administration, the Congressional Budget Office, stakeholders, former IRS executives, our association and organizations like it have spent many years warning Congress of dire consequences to taxpayer services in the absence of additional funding. Each of the ‘Most Serious Problems Encountered by Taxpayers’ outlined in the 2021 Annual Report is underpinned by a lack of funding, resources, and critical infrastructure preventing the IRS from recruiting and retaining qualified personnel. These personnel challenges have been exacerbated by the pandemic, with hundreds of IRS workers coming down with Covid in the last few weeks,” Hooper stated.
The IRS also has one of the oldest continuously operating systems in government, in addition to an aging workforce. Later this year, the agency's core computing systems will celebrate 60 years of service.
“The IRS cannot reduce the backlog when relying on a technology system that will turn 60 years old this year – older than most IRS employees and the oldest computing system in use in the federal government. If Congress wants the IRS backlog to be reduced and taxpayer services to be adequately provided, the solution is simple: Congress must fund the IRS,” Hooper added.
In its 2022 Purple Book, the National Taxpayer Advocate proposes 68 legislative recommendations to Congress, including:
Ensure that the IRS has adequate funds to improve taxpayer services and modernize its information technology systems;
If the IRS delays the filing deadline, extend the period for refunds;
Allow the IRS to establish minimum standards for paid tax return preparers;
Expand the jurisdiction of the U.S. Tax Court to handle refund cases;
Simplify the Earned Income Tax Credit (EITC) for taxpayers and reduce improper payments; and
Improve the Low Income Taxpayer Clinic (LITC) program to protect taxpayer rights.
Americans should begin gathering any W-2s from employers or 1099 forms and decide if they want to enlist professional assistance soon.
Unemployed individuals in 2021 should receive a Form 1099-G from your state's unemployment department. Unemployment benefit recipients this year are not eligible for a tax break, unlike in 2020.
Those who received the child tax credit will receive a Letter 6419 from the IRS. Expect to receive a Letter 6475 from the agency in late January if you received a stimulus check.
