The Internal Revenue Service needs to make changes in its management of taxpayer accounts to reduce the backlog of millions of unprocessed tax returns, according to a new report.
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Recent estimates from other sources have put the number at 20 million unprocessed tax returns from 2020, although IRS Commissioner Charles Rettig told a congressional hearing last week that the IRS would catch up on the backlog by the end of the year. The IRS plans to hire 10,000 employees over the coming year and recently received a $675 million funding boost from Congress that it aims to use to improve taxpayer service (
The TIGTA report examined the workings of the Accounts Management function, which is responsible for helping both individual and business taxpayers with questions about tax laws and tax accounts, making adjustments to taxpayer accounts when necessary. However, it found that delays in working on correspondence increased the burdens on taxpayers and the costs to the federal government. The IRS paid $166.4 million in interest between Aug. 14, 2020, and Aug. 26, 2021, just to deal with some amended tax returns. The time it takes Accounts Management to work on a taxpayer’s request contributes to the amount of interest the IRS has to pay, TIGTA pointed out.
The report recommended that the IRS redirect some of the tax account correspondence and replies to IRS letters to the IRS’s Accounts Management campus support sites as a way to improve taxpayer service. TIGTA found it took tax processing centers 53 days longer than the campus support sites to receive, process, and scan correspondence into the Accounts Management inventory.
Technology improvements would help, too — if the IRS would implement them. “Expanding options for taxpayers to correspond with the IRS electronically can also reduce the time it takes for correspondence to reach Accounts Management,” said the report. “The IRS’s Taxpayer Experience Strategy includes plans to expand services to allow taxpayers to provide documents to the IRS digitally. However, IRS management indicated there is no planned implementation date within Accounts Management.”
To deal with the backlog this tax season, the IRS has been setting up so-called “surge teams” from other parts of the agency to help with tax return processing and phone calls. But that could well backfire too.
The TIGTA report noted that many Accounts Management employees split their time between working Accounts Management cases and answering IRS toll-free telephone calls. But as call volumes increase, fewer resources are then available to work on the old inventory in Accounts Management. TIGTA estimated that the Accounts Management function could close all of the cases in its inventory as of Oct. 1, 2021, in approximately seven months if all its employees were dedicated to working on the inventory.
Another problem TIGTA found is that Accounts Management inventory reporting among the Accounts Management sites is incomplete and inconsistent. TIGTA said it issued eight alerts to IRS management during its review. IRS management took actions to address four of TIGTA’s alerts, including providing additional resources to help with the scanning backlogs at the tax processing centers, increasing staffing at a new campus support site in Fresno, California, implementing processes to provide timely screening of correspondence, and verifying inventory reporting for all 10 of the Accounts Management sites to spot any inventory reporting inconsistencies and errors.
TIGTA made 19 recommendations in the report to the IRS, including that the service redirect the receipt of correspondence to its campus support sites, prioritize the implementation of tools that enable taxpayers to directly upload documents into Accounts Management’s inventory, consider establishing a separate program that only works Accounts Management inventory, and modify and improve the reporting of Accounts Management inventories.
The IRS agreed with 16 of the 19 recommendations, but agency officials don’t think it will be feasible to get the increased staffing they would need to accommodate moving all the Accounts Management correspondence to the campus support sites. IRS management also didn’t agree to update or get new scanning software or implement changes to the Accounts Management inventory report.
“With the 2022 filing season now underway, our Accounts Management function is still facing unprecedented inventory levels, which continues to contribute to high call volumes and related inquiries,” said Kenneth Corbin, commissioner of the IRS’s Wage and Investment Division and chief taxpayer experience officer, in response to the report. “Despite steady progress, Account Management’s current internal resources are not sufficient to overcome this challenge without significant efforts. We are currently working to establish an Inventory Surge Team that will help us address this inventory, recover from this challenge, and improve the overall taxpayer experience.”
The IRS recently deployed a new technology tool to help it overcome its backlog of unprocessed returns. “What makes me extremely optimistic is that the IRS has built a tool to go through those, and I think they’ve reported that in the last two to three weeks they’ve reduced that backlog by a good 40%,” said Brian Schmidt, CEO of Green Dot’s Tax Products Group, which is one of the largest tax processors in the U.S. and recently processed approximately 44% of all refunds issued by the IRS. “I still believe that’s something they’ll manage through with this new tool. That being said, there is still increased risk this year for some delays for taxpayers, but I remain bullish the IRS will get through that, though some taxpayers will be impacted by that delay.”
He cited figures from the IRS estimating the new tool reduced the backlog over the past two to three weeks from approximately 10 million returns to 6 million. “I believe they’re in much better shape this year in addressing that backlog and helping with it,” said Schmidt. “That’s why I’m optimistic.”
