IRS service issues highlighted in national taxpayer advocate report

While the IRS was able to promptly process 85% of returns in the 2022 filing season and expedite its resolution of some of the most common taxpayer errors, the Service’s backlog of paper-filed returns bogged down further, National Taxpayer Advocate Erin Collins said in a report issued in June.

Collins’s annual midyear report, Objectives Report to Congress, for fiscal 2023 reviewed the IRS’s performance in the 2022 tax filing season and outlined 14 “systemic advocacy objectives” going forward. The report also lists internal goals and objectives for the Taxpayer Advocate Service (TAS) Collins heads.

Paper-filed returns

As of the end of May 2022, the 21.3 million paper tax returns the IRS had still to process represented an increase of 1.3 million over the same point in 2021, according to a news release accompanying the report.

“The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds,” Collins said in the release. “Unfortunately, at this point the backlog is still crushing the IRS, its employees, and most importantly, taxpayers.” To help the IRS reach its goal, Collins said, TAS will continue to advocate that the IRS automate its processing of paper returns, including by adopting her directive in March that it implement 2-D barcoding on tax forms. Others, including a group of U.S. senators, have also commended the technology to the IRS.

“Although IRS leaders have indicated they are not likely to implement 2-D barcoding, I strongly urge them to implement a plan to achieve automation of paper processing in time for the next filing season,” Collins said in a preface to the report. “Doing so is critical.” Without that and other innovative approaches and better use of its existing resources, IRS Commissioner Charles Rettig’s stated goal of getting “healthy” with respect to the backlog by the end of 2022 “will be a difficult commitment to achieve,” Collins stated. The report estimates that the Service would have to process well over 500,000 individual paper returns in the Form 1040 series per week, while its current rate is about 205,000 per week. That takes into account not only the current Form 1040 inventory but additional returns it will receive as the extended filing deadline of Oct. 17 approaches.

“The math is daunting,” Collins wrote. Much of the problem arises from the paper returns’ current labor-intensive and error-prone transcription methods, Collins said.

“Today, the digits on every paper return must be manually keystroked into IRS systems by an employee,” she wrote. “In the year 2022, that doesn’t just seem crazy. It is crazy.”

Although Rettig’s “healthy” comment in a congressional hearing accompanied his assurance that the Service would clear its backlog by year’s end, Collins noted that he did not define “healthy.” She suggested a less ambitious measure than becoming current with all inventory, one keyed to how quickly taxpayers can receive refunds.

“From a taxpayer perspective, returning to a four- to six-week refund delivery period is a reasonable definition of ‘healthy,’ ” Collins wrote. Over the past year, Collins said in the news release, refund delays on paper-filed returns have generally exceeded six months, “with delays of 10 months or more common for many taxpayers.”

On June 21, the IRS reported in its own news release (IR-2022-128) that it was on track to complete its processing of the 4.7 million original (not amended) Form 1040 returns it received on paper in 2021 by the end of that week and that business paper returns filed in 2021 would be completed soon afterward. However, the Service also noted that it had twice as many returns overall awaiting processing than at a similar point in a typical year, despite having completed work on almost 1 million more returns.

Errors and taxpayer correspondence

If a return contains an error, Collins wrote, processing it — whether or not filed on paper — and issuing its refund can take still longer, sometimes well over a year. If the IRS adjusts a return, it generally must correspond with the taxpayer and allow a reply — generally, both by postal letter. As of May 21, 2022, the IRS took an average of 251 days — more than eight months — in such instances, which was more than triple the 74 days in fiscal 2019, before the pandemic.

The IRS should also remove barriers to e-filing tax returns, which include that some IRS forms are not e-fileable, Collins said. It should also improve its hiring and training processes, particularly in its Submission Processing and telephone call centers, and enhance taxpayers’ online accounts and digital channels of communication with the Service.

Hiring and training

While the Service was able to hire 99% of its goal of 5,000 new employees in its Account Management operation, a corresponding plan to hire 5,473 new staff members in Submission Processing reached only 38% of that goal, Collins reported. Paper return transcribing is done only at the latter function’s sites at Austin, Texas; Kansas City; and Ogden, Utah, she noted.

Telephone service

IRS telephone operators were able to answer only 10% of taxpayer calls during the 2022 filing season, marginally better than their 9% in 2021 but with fewer than half as many incoming calls (73 million in 2022 through April 23, versus 167 million in 2021 through May 21, 2021). The average wait time on hold increased from 20 minutes to 29 minutes.

“If a private company failed to answer nine out of 10 customer calls, customers would go elsewhere,” Collins said in the news release. “That, of course, is not an option for U.S. taxpayers, so it is critical that the IRS increase staffing in its telephone call centers to handle the volume of calls it receives.”

EditorNotes

Paul Bonner is the editor-in-chief of The Tax Adviser.