Last year was the "most challenging year taxpayers and tax professionals have ever experienced," the Taxpayer Advocate said Wednesday in its latest annual report to Congress as the IRS gears up for the start of tax filing season on January 24. The top agency watchdog warned the agency is in crisis.
"There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous," wrote National Taxpayer Advocate Erin M. Collins.
Among those challenges for taxpayers and professionals: long processing times and refund delays, difficulty reaching the IRS by phone, correspondence that went unprocessed for "many months," limited and no information available on the "Where's My Refund?" tool for delayed returns and more, according to the report.
the IRS faces enormous challenges heading into the new tax season, including the backlog. The IRS started 2021 with more than 11.7 million returns from 2020. It took until June for the agency to process all the 2019 returns, the report showed. Now heading into the new tax-filing season, the backlog continues. As of mid-December the IRS had millions of items still to address, including more than 6 million unprocessed individual returns, 2.8 million unprocessed business returns, a combined more than 2.8 million unprocessed amended individual and business returns and approximately 4.75 million pieces of correspondence.
"The IRS is in crisis and needs to apply resources to its core mission – processing these returns and paying the corresponding refunds," the report stated. Adding to the complexity heading into the new tax filing season, taxpayers who received advanced monthly child tax credit payments and stimulus checks last year will also need to reconcile those, so processing and refund delays experienced last year could be "as bad, and potentially worse, in 2022," the report said.
At the same time, call volume "skyrocketed" to historic levels during the pandemic. The IRS received about 282 million calls in the 2021 fiscal year, of which only about 32 million were answered — 11%, or 1 in 9 callers. Among those who got through, the average hold time was 23 minutes, but taxpayers and preparers reported hold times much longer, according to the report.
Taxpayers also flocked to IRS.gov, which had nearly 2 billion visits in 2021 — up from roughly 650 million in 2019. More than 632 million people used the "Where's My Refund" tool, more than 260 million than the previous year. While the IRS encouraged taxpayers to rely on the "Where's My Refund?" tool to find out when to expect their refund, the program had "significant limitations" making it non-functional for tens of millions of taxpayers experiencing delays, the taxpayer advocate wrote, noting it does not explain status of delays, reasons for delays or where the refunds are in processing.
The report points out that issues at the IRS are not only due to the pandemic but also a direct result of a diminished budget over the past decade that has led to inadequate staffing. Over the past decade, the IRS's budget has been slashed by nearly 20% including the adjustment for inflation. At the same time, the IRS has lost more than 33,000 full-time employees between 2010 and 2020, including 13,4000 enforcement personnel.
Collins' main recommendation to Congress is to provide the IRS with more money to meet taxpayer needs and conduct oversight to ensure the funding is well spent.
As part of its own 2022 budget proposal, the Biden administration is calling for an increase in IRS funding of nearly 15%. The Build Back Better Act passed in the House also includes an additional $80 billion in funding over 10 years, but the bill remains stalled in the Senate. The taxpayer advocate warned the new money would also not immediately solve issues because the agency would need to recruit, hire and train employees.
While the watchdog gave a blistering report of the situation, Collins wrote that despite the challenges, the IRS performed well under the circumstances, noting the gap between the workload and resources has never been greater.
The number of taxpayers the agency serves has increased 19% since 2010. During the pandemic, Congress relied on the IRS to send out billions of dollars, including three rounds of stimulus payments and advance monthly child tax credit payments, and exempted some unemployment benefits during filing season. The IRS managed to process most electronically filed returns in a "timely" manner, issued 130 million refunds totaling $365 billion, distributed 478 million stimulus payments totaling $812 billion and sent $93 billion in advanced child tax credit payments to 36 million families.
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