Nationwide Taxpayer Advocate Erin Collins expressed deep considerations Wednesday concerning the upcoming tax submitting season in her annual report back to Congress on the 2021 submitting season.
The report discovered that tens of hundreds of thousands of taxpayers noticed delays within the processing of their returns final yr, and with 77% of particular person taxpayers receiving tax refunds, “processing delays translated immediately into refund delays.” Related delays or worse are more likely to happen this yr.
The IRS itself and the Treasury Division are warning of tax refund delays this yr attributable to staffing shortages stemming from price range cuts and the COVID-19 pandemic (see story). The IRS has additionally been dealing with the complexities of administering this previous yr’s tax aid measures, together with advance Baby Tax Credit score funds and Financial Influence Funds. The IRS continues to be coping with hundreds of thousands of unprocessed tax returns, particularly ones that arrived on paper.
“Whereas my report focuses totally on the issues of 2021, I’m deeply involved concerning the upcoming submitting season,” Collins stated in releasing the report. “Paper is the IRS’s Kryptonite, and the company continues to be buried in it.”
Nationwide Taxpayer Advocate Erin Collins testifying earlier than a congressional committee in October 2020.
Tasos Katopodis/Bloomberg
As of late December, the IRS had backlogs of 6 million unprocessed unique particular person returns (Varieties 1040), 2.three million unprocessed amended particular person returns (Varieties 1040-X), greater than 2 million unprocessed employer’s quarterly tax returns (Varieties 941 and 941-X), and about 5 million items of taxpayer correspondence — with a few of the submissions courting again at the very least to April 2021 and lots of taxpayers nonetheless ready for his or her refunds 9 months later.
The report does credit score the IRS with performing properly underneath difficult circumstances. Because the starting of the pandemic, the IRS, along with its conventional work, has applied vital packages enacted by Congress. Amongst different issues, it has issued 478 million stimulus funds (known as Financial Influence Funds or “EIPs”) totaling $812 billion and has despatched Advance Baby Tax Credit score (AdvCTC) funds to over 36 million households totaling over $93 billion.
The report identified that “[t]he imbalance between the IRS’s workload and its sources has by no means been better.” Since fiscal yr (FY) 2010, the IRS’s workforce has shrunk by 17%, whereas its workload — as measured by the variety of particular person return filings — has elevated 19%. The report reiterates the Nationwide Taxpayer Advocate’s longstanding suggestion that Congress present the IRS with ample funding to serve taxpayers properly.
“There isn’t any strategy to sugarcoat the yr 2021 in tax administration,“ Collins wrote. “The yr 2021 offered no scarcity of taxpayer issues.”
Whereas electronically filed returns fared higher than paper returns, the report discovered that hundreds of thousands of e-filed returns have been suspended throughout processing attributable to discrepancies between quantities claimed on the returns and quantities mirrored on IRS information. The commonest discrepancy concerned Restoration Rebate Credit score (RRC) claims by taxpayers who didn’t obtain some or all of their stimulus funds as EIPs the prior yr. These tax returns needed to be manually reviewed, and the IRS issued greater than 11 million math error notices to taxpayers over RRC discrepancies with IRS information. When a taxpayer disagreed with a math error discover and submitted a response, the taxpayer’s response went into the IRS’s paper processing backlog, additional delaying the refund.
Collins is anxious that the variety of returns suspended and requiring guide processing is more likely to be excessive once more in 2022. In March, Congress approved two advance tax credit that might result in extra discrepancies between quantities claimed on tax returns and in IRS information. It approved a 3rd spherical of EIPs which may be claimed as RRCs by taxpayers who didn’t obtain them, and it approved month-to-month funds of the Advance Baby Tax Credit score (AdvCTC) for the second half of 2021, each of which should be claimed and/or reconciled on 2021 particular person tax returns. The IRS is making an attempt to attenuate the discrepancies by mailing notices to taxpayers who acquired EIPs and AdvCTC displaying how a lot they acquired, however hundreds of thousands of discrepancies — and math error notices — are nonetheless more likely to happen.
As of the postponed submitting deadline of Could 17, 2021, the IRS was holding 35.three million tax returns for worker assessment that was made up of roughly half unprocessed paper returns and half tax returns suspended throughout processing, resulting in refund delays for a lot of of those taxpayers.
“Refund delays have a disproportionate impression on low-income taxpayers,” stated the report. “Earned Revenue Tax Credit score (EITC) advantages are value as much as $6,660, Baby Tax Credit score advantages [were] value as much as $2,000 per qualifying little one underneath tax yr 2020 guidelines, and RRCs are doubtlessly value a number of thousand {dollars} for households who didn’t obtain some or all of their EIPs. Tens of millions of taxpayers depend on the advantages from these packages to pay their primary dwelling bills, and when refunds are considerably delayed, the monetary impression can vary from gentle inconvenience to extreme monetary hardship.”
The report blamed processing delays for resulting in an array of customer support issues:
The IRS’s “The place’s My Refund?” app usually couldn’t reply the query of what occurred to a tax refund. Taxpayers tried to verify the standing of their refunds on IRS.gov greater than 632 million instances in 2021, however “The place’s My Refund?” doesn’t give data on unprocessed returns, and it doesn’t clarify any standing delays, the explanations for the delays, the place returns stand within the processing pipeline, or what actions taxpayers ought to take, if any. For taxpayers who skilled vital refund delays, the software usually didn’t do its job.
Phone service was the worst it has ever been. The mixture of processing delays and questions on new packages just like the AdvCTC brought on name volumes to just about triple from the prior yr to a document 282 million phone calls. Customer support representatives (CSRs) solely answered about 32 million, or 11 p.c, of these calls. Consequently, most callers couldn’t acquire solutions to their tax legislation questions, get assist with account issues, or converse with a CSR a couple of compliance discover.
“Among the many fortunate one in 9 callers who was in a position to attain a CSR, the IRS reported that maintain instances averaged 23 minutes,” the report stated. “Practitioners and taxpayers have reported that maintain instances have been usually for much longer, and frustration and dissatisfaction was excessive all year long with the low degree of telephone service.”
The IRS wanted months to course of taxpayer responses to its notices, additional suspending refunds. The IRS mailed tens of hundreds of thousands of notices to taxpayers throughout 2021, together with almost 14 million math error notices, Automated Underreporter notices (the place an quantity reported on a tax return didn’t match the corresponding quantity reported to the IRS on a Kind 1099 or different data reporting doc), notices requesting a taxpayer authenticate his or her id the place IRS filters flagged a return as doubtlessly fraudulent, correspondence examination notices and assortment notices. In lots of circumstances, taxpayer responses have been required, and if the IRS didn’t course of a response, its automated processes may take adversarial motion or not launch the refund claimed on the tax return. The IRS acquired 6.2 million taxpayer responses to proposed changes and took a median of 199 days to course of them, up from 74 days in fiscal yr 2019, the latest yr earlier than the pandemic.