IRS pleads for more funding as it looks back over tax season

The Internal Revenue Service is renewing its call for extra money in its budget Monday as it closes out a challenging tax season.

The IRS hopes to hire 10,000 more employees by the end of the year to deal with the processing backlogs that have plagued the agency since before the start of the year, especially for paper returns. This tax season was especially complicated as taxpayers and preparers had to take into account the advance payments on the enhanced Child Tax Credit as well as the third round of Economic Impact Payments and the Recovery Rebate Credit that was used to claim any EIPs that weren’t received in earlier rounds of the stimulus payments.

“This tax season has been unlike any other,” wrote IRS Commissioner Chuck Rettig in a Tax Day message. “The COVID-19 pandemic left a series of new challenges in its wake — and for the first time, the IRS was called upon to distribute emergency resources to millions of struggling families and businesses. IRS employees did not hesitate, fighting hard during the pandemic to deliver on every front. Working around the clock and in person throughout almost all of the last two years, IRS employees distributed three rounds of stimulus checks and advanced the Child Tax Credit — delivering nearly $1.5 trillion in needed relief to the American people. There is more to be done: Millions of returns are awaiting processing, and billions in refunds are still to be distributed. But our work is paying off. Refunds are rapidly being sent to the vast majority of taxpayers within 21 days, with 70 million refunds worth $222 billion delivered through April 8.”

Andrew Harrer/Bloomberg

However, he noted the IRS is desperately short on staff and resources. “Over the course of the last decade, the IRS' budget fell more than 15%in real terms,” he wrote. “Because of this decrease, in 2021 we realized less than 79,000 full-time positions, which is close to 1974 levels. Since 2010, IRS enforcement personnel fell by 30%, while the nation's real Gross Domestic Product increased by 29%, and the filing population has increased by 14%. Over the next six years, we estimate we will need to hire 52,000 employees just to maintain our current levels.”

The IRS has set a goal to hire 10,000 more employees within the next year, and it has been holding job fairs at its processing centers in Ogden, Utah and other locations. Now that the IRS has been given direct hire authority, it is able to hire employees on the spot. Rettig noted that the IRS has offered positions to more than 2,500 people in the last few weeks. But it is competing against businesses that are also short on workers and able to offer higher starting salaries and sign-on bonuses than the IRS is able to afford. President Biden’s fiscal year 2023 budget proposal provides $14.1 billion for the IRS, encouraging the agency to improve taxpayer service, upgrade its technology and hire more staff.

“Today’s deadline is an inflection point in what has been the agency’s most challenging filing season in recent history,” wrote Natasha Sarin, counselor for tax policy and implementation at the Treasury Department, in an editorial. “This is the byproduct of chronic underfunding that has starved the IRS of the tools it needs to serve the American people, coupled with a historic pandemic that introduced new responsibilities alongside mammoth challenges. That is why the Biden Administration has at every turn worked with Congress to try to provide the IRS the stable, long-term funding that it desperately needs. And, Congress is right now considering this pivotal investment as part of legislation that would reduce costs for families and the deficit. But, to date, this need remains unmet.”

She noted that the IRS began this tax season with tens of millions of returns unprocessed from last year in part because the IRS’s technology is antiquated, with a heavy reliance on manual processing. For example, IRS employees open paper returns by hand.

“The IRS has a plan in place to get through its backlog of unprocessed returns this year,” said Sarin. “But so long as funding remains insufficient, the system will be at risk of these kinds of failures and Americans won’t have the kind of service they deserve.”

She and Rettig said the IRS needs stable, long-term funding, with Sarin calling on Congress to provide $80 billion over the course of the next decade.

The IRS has reportedly reduced its backlog of unprocessed returns from 2021 to 2.7 million, Rettig testified to the Senate Finance Committee earlier this month (see story). The Professional Managers Association, a group of IRS managers, said Monday that the backlog is now down to around 2.4 million.

“We will be honest; this tax season was tough,” said PMA executive director Chad Hooper in a statement. “The IRS continues to battle a backlog of over 2.4 million individual returns from 2021. IRS employees are struggling to manage a technology system older than most of the workforce — operating for its 61st consecutive filing season. And of course, taxpayers are struggling to get an IRS representative on the phone to answer basic questions. To address the dearth of taxpayer services, the IRS launched a hiring initiative last year aiming to bring on 5,000 new employees for this filing season. The initiative brought in 180 new hires. The IRS is now reshuffling employees and midway through a new effort to hire 5,000 people to address the backlog and respond to taxpayer concerns, but there is no two ways about it: this filing season has been fraught with frustration for all parties.”

He too called on Congress to increase funding for the agency. “I imagine it will only be a matter of time before Congress returns to blaming the IRS for the tax season’s challenges, delays and other stressors,” said Hooper. “But let’s be clear: the issues at the IRS are not the fault of our members or individual employees, but the result of a systemic and intentional depletion of IRS resources and capacity. The best thing we can do this Tax Day is look ahead. Congress can, and should, take vital steps today to prevent the next tax season from being just like this one and the last. Congress must get ahead of the FY 2023 appropriations process and adequately fund the IRS on time.”