IRS is in disaster forward of tax season, Taxpayer Advocate warns

Final yr was the “most difficult yr taxpayers and tax professionals have ever skilled,” the Taxpayer Advocate mentioned Wednesday in its newest annual report back to Congress because the IRS gears up for the beginning of tax submitting season on January 24. The highest company watchdog warned the company is in disaster. 

“There isn’t a approach to sugarcoat the yr 2021 in tax administration: From the angle of tens of thousands and thousands of taxpayers, it was horrendous,” wrote Nationwide Taxpayer Advocate Erin M. Collins.

Amongst these challenges for taxpayers and professionals: lengthy processing occasions and refund delays, problem reaching the IRS by cellphone, correspondence that went unprocessed for “many months,” restricted and no data out there on the “The place’s My Refund?” instrument for delayed returns and extra, in keeping with the report.

Treasury officers mentioned Monday the IRS faces huge challenges heading into the brand new tax season, together with the backlog. The IRS began 2021 with greater than 11.7 million returns from 2020. It took till June for the company to course of all of the 2019 returns, the report confirmed. Now heading into the brand new tax-filing season, the backlog continues. As of mid-December the IRS had thousands and thousands of things nonetheless to deal with, together with greater than 6 million unprocessed particular person returns, 2.8 million unprocessed enterprise returns, a mixed greater than 2.8 million unprocessed amended particular person and enterprise returns and roughly 4.75 million items of correspondence.

“The IRS is in disaster and wishes to use assets to its core mission – processing these returns and paying the corresponding refunds,” the report acknowledged. Including to the complexity heading into the brand new tax submitting season, taxpayers who acquired superior month-to-month baby tax credit score funds and stimulus checks final yr can even must reconcile these, so processing and refund delays skilled final yr might be “as unhealthy, and doubtlessly worse, in 2022,” the report mentioned.

On the similar time, name quantity “skyrocketed” to historic ranges throughout the pandemic. The IRS acquired about 282 million calls within the 2021 fiscal yr, of which solely about 32 million had been answered —  11%, or 1 in 9 callers. Amongst those that acquired via, the common maintain time was 23 minutes, however taxpayers and preparers reported maintain occasions for much longer, in keeping with the report.

Taxpayers additionally flocked to, which had almost 2 billion visits in 2021 — up from roughly 650 million in 2019. Greater than 632 million individuals used the “The place’s My Refund” instrument, greater than 260 million than the earlier yr. Whereas the IRS inspired taxpayers to depend on the “The place’s My Refund?” instrument to search out out when to count on their refund, this system had “vital limitations” making it non-functional for tens of thousands and thousands of taxpayers experiencing delays, the taxpayer advocate wrote, noting it doesn’t clarify standing of delays, causes for delays or the place the refunds are in processing.

The report factors out that points on the IRS should not solely as a result of pandemic but in addition a direct results of a diminished finances over the previous decade that has led to insufficient staffing.  Over the previous decade, the IRS’s finances has been slashed by almost 20% together with the adjustment for inflation. On the similar time, the IRS has misplaced greater than 33,000 full-time staff between 2010 and 2020, together with 13,4000 enforcement personnel.

Collins’ essential advice to Congress is to offer the IRS with more cash to satisfy taxpayer wants and conduct oversight to make sure the funding is properly spent.

As a part of its personal 2022 finances proposal, the Biden administration is asking for a rise in IRS funding of almost 15%. The Construct Again Higher Act handed within the Home additionally consists of a further $80 billion in funding over 10 years, however the invoice stays stalled within the Senate. The taxpayer advocate warned the brand new cash would additionally not instantly clear up points as a result of the company would want to recruit, rent and practice staff.

Whereas the watchdog gave a blistering report of the state of affairs, Collins wrote that regardless of the challenges, the IRS carried out properly below the circumstances, noting the hole between the workload and assets has by no means been larger.

The variety of taxpayers the company serves has elevated 19% since 2010. In the course of the pandemic, Congress relied on the IRS to ship out billions of {dollars}, together with three rounds of stimulus funds and advance month-to-month baby tax credit score funds, and exempted some unemployment advantages throughout submitting season. The IRS managed to course of most electronically filed returns in a “well timed” method, issued 130 million refunds totaling $365 billion, distributed 478 million stimulus funds totaling $812 billion and despatched $93 billion in superior baby tax credit score funds to 36 million households.

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