The Internal Revenue Service had a backlog of over 17 million unprocessed tax returns from last year as of early February as the agency copes with an unprecedented workload during the current tax season, prompting it to reverse plans to close a processing center in Austin, Texas.
National Taxpayer Advocate Erin Collins testified during a Senate Finance Committee hearing Thursday about the challenges facing the IRS, alongside officials from the American Institute of CPAs and the Government Accountability Office, which issued a
Collins reported that as of early February 2022, the IRS had in its inventory about 17.6 million tax returns and about 5.9 million pieces of taxpayer correspondence/Accounts Management cases (excluding amended tax returns) that require manual processing. As of Feb. 14, 2022, the IRS website reported that “all paper and electronic individual refund returns received prior to April 2021 have been processed if the return had no errors and did not require further review,” but Collins noted that by implication, that means returns filed as far back as April of last year are still awaiting processing.
“In releasing my
The GAO report also gives figures as of last December. It found the IRS reduced the backlog of prior-year returns, but as of late December 2021, it had about 10.5 million returns to process from 2021. “For the current filing season, IRS will need to process the remaining returns from 2021 along with incoming returns from 2022 and may need to rely on overtime to do so,” said the report. “IRS also expects about 21 million returns to be stopped for errors associated with recent tax law changes.”
The Professional Managers Association, a group of IRS managers, recently estimated the backlog to be nearly 24 million returns, according to the
Those backlogs are making life difficult for taxpayers. “Citizens deserve a responsible and responsive tax system that treats taxpayers fairly and timely,” said Collins.
The IRS is dealing with staffing shortages that are prompting the agency to shift around employees from department to department to handle the phones. In 2021 the IRS answered more phone calls than in recent years, but taxpayers still had a difficult time reaching IRS due to high call volumes, the GAO reported. The IRS expects customer service representatives to answer about 35% of incoming calls during the 2022 filing season. To help manage high call volumes, the IRS is urging taxpayers to access its online tools like “Where's My Refund” to get their refund status information. But the GAO noted that the tool provides limited information on refund status and delays. The GAO's preliminary observations indicate the IRS has no plans to modernize “Where's My Refund,” although this could help IRS better serve taxpayers, lower call volume, and reduce costs.
“IRS struggles to balance competing demands for telephone and written correspondence because many staff are responsible for both duties,” said Jessica Lucas-Judy, director of strategic issues at the GAO. “Further, when taxpayers cannot find the information that they need using online resources, they call or they send mail. To help address immediate needs, IRS converted seasonal workers to permanent hires, rehired former staff, and used a streamlined hiring approach. Our ongoing review indicates the IRS encountered challenges hiring enough new returns processing staff during fiscal year 2021. Attrition affected future staffing. The attrition rate for returns processing staff was more than twice the agency’s overall rate. We recognize overtime is a necessary tool to help manage unexpected surges in workload, but it’s not sustainable to rely primarily on overtime to offset complex human capital challenges such as reduced staffing levels and attrition.”
The AICPA voiced the concerns of tax professionals about the current tax season.
“I’m here today because there’s still time to salvage this filing season,” said Jan Lewis, chair of the AICPA Tax Executive Committee. “Over the past several years, we’ve experienced a variety of service issues with the IRS, most of which relate to erroneous notices, slow processing of returns and written correspondence and difficulty reaching the IRS by telephone. These problems have been magnified the past two years, and at times we as CPAs are powerless to help our clients navigate these IRS service issues.”
She pointed to the IRS’s recent announcement that it would suspend some of the automated notices that have been going out to taxpayers from the IRS’s computer systems, but not all of them (
“The AICPA appreciates that the IRS seems to be listening and responding to the collective frustrations of all taxpayers,” said Lewis in her opening statement. “Taxpayers, practitioners and IRS will benefit from reducing unnecessary contact that will result from the notice suspensions. However, we must urge the Service to move as quickly as possible to offer all possible, reasonable measures of relief as we are already in the beginnings of tax busy season.”
Also on Thursday, the IRS announced that it would reverse plans to close its Austin, Texas processing center, which had been the subject of a recent
The National Treasury Employees Union, which represents IRS employees, had urged the IRS as early as May 2021 to reconsider its plan to close the submission processing operation in Austin because the agency was already struggling with backlogs and staffing shortages.
“We applaud the IRS for finally recognizing that those employees in Austin are essential to the agency’s ability to dig out from the backlog of returns and correspondence, and that there is an ongoing need for the IRS to retain this capacity,” NTEU national president Tony Reardon said in a statement. “This decision, although later than we would have liked, allows employees in Austin to stop worrying that their jobs were about to disappear, and instead focus on delivering a successful filing season, the third of the pandemic.”
Members of Congress had also objected to the closure.
“I am gratified that the IRS acted expeditiously to our calls and is no longer closing the processing facility in Austin,” said Rep. Bill Pascrell, chairman of the House Ways and Means Oversight Subcommittee, in a statement. “The IRS is already racked by delays and this closure would have added further dysfunction and chaos for millions of taxpayers. Tax-filing season is already nerve-racking enough and the IRS must do all it can to make the process better. This is a helpful start.”
Sen. Bob Menendez, D-New Jersey, noted that he had called the IRS on Thursday to ask it not to close the processing center. “Today, I urged the IRS not to close its processing center in Austin, TX given how this would affect ITIN applicants & all taxpayers,” he
Democrats at the Senate hearing pushed for increases in the IRS budget to hire more workers and improve the IRS’s aging technology. “The IRS gets a lot of mail, and some of it includes physical checks sent by taxpayers,” said Senate Finance Committee chairman Ron Wyden, D-Oregon, in his opening statement. “The problem is, the machines that scan and sort that mail are out of date and unable to properly handle the envelopes that contain checks. This cost the taxpayer more than $56 million dollars in 2021 alone because the IRS was unable to open the right envelopes and process the payments in time. So, in the long run, failing to invest in IT upgrades doesn’t save taxpayer dollars, it costs them.”
Senate Republicans want the IRS to focus on fixing the problems. “Many Americans await last year’s tax refunds,” said Sen. Mike Crapo, R-Idaho, the ranking Republican on the Senate Finance Committee. “Many Americans await any response to correspondence they sent the IRS, in many instances many months ago. Many Americans have received incorrect or outdated information from the IRS, or have been subject to improper collections or other adverse actions simply because the IRS does not know they have filed a return or responded to a notice. Many Americans cannot receive accurate answers to basic questions, like how long it will take to receive their tax refund or an answer to their correspondence.”
