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Five ways to fix the IRS, starting with a halt to most audits

Pause all audits for four months and bring retired people back to work until the agency clears its backlog of tax returns

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If there is one thing we’ve learned over the past two years, it is that the Internal Revenue Service is vital to the economic health of our nation. In the midst of a pandemic it has delivered $800 billion in economic impact payments (EIPs), or stimulus checks, almost $93 billion in advance child tax credits, and additional billions in employee retention and sick and family leave credits.

We’ve also learned the agency is at its breaking point.

Tax season, once again, is going to be a hot mess. Here’s when to expect your refund this year.

If last year’s filing season is a guide, this year’s experience promises to be a doozy. Treasury and IRS officials, including the national taxpayer advocate, are warning us to be patient and calling for a much-needed increase in funding for IRS staff and technology.

But an infusion of long-term funding for new hires will not bring immediate relief to beleaguered individual taxpayers or get them their tax refunds any quicker. And that means more economic punishment. About 75 percent of individual taxpayers count on receiving a refund and with the average refund at $2,775, that’s serious cash in these inflationary times.

For all of 2021, the IRS struggled with antiquated systems for dealing with questionable returns. Once flagged as suspicious for identity theft or questionable refund claims, such returns must be manually reviewed by an IRS employee.

Three days after the 2022 tax season started, an overwhelmed IRS suspends some taxpayer notices

That can lead to significant delays — even though 60 to 90 percent may have been erroneously flagged — exacerbating backlogs in return and correspondence processing. On top of that, IRS agents only managed to respond to a dismal 11 percent of a historic 282 million phone calls.

The IRS ended the year with 11.9 million unprocessed returns, according to the national taxpayer advocate. The number of in-process returns still waiting for an employee to take action on them remains unknown.

So, what can be done this filing season to mitigate, if not eliminate, the damage to taxpayers?

Here are a few simple suggestions.

First, IRS employees are as essential to the economic health of the nation as health-care employees are to its physical health, and they need to be treated as such. This means IRS front-line employees, especially those working on processing returns, opening and processing mail, and answering taxpayer calls, must be classified as essential workers.

Just as health-care workers are required to report in person to hospitals, IRS employees fulfilling these duties must report in person for full shifts at IRS processing sites.

And because they are essential workers, the federal government should make it the highest priority to ensure their working conditions are as safe as possible.

This may involve scheduling shifts throughout the day and night, 24 hours a day, to allow for distancing.

I don’t doubt IRS employees are exhausted from the herculean efforts they’ve made over the past two years, but we need them to return to the physical workplace to maintain the economic health of U.S. taxpayers.

Second, IRS leadership must adopt an all-hands-on-deck approach to the filing season crisis. The agency must deploy all available employees, including those in centralized audit and collection functions, to clear the backlog of returns and correspondence.

IRS delays triggered some premature collection notices

The IRS commissioner recently stated the IRS is trying to hire 5,000 customer service employees, but only 179 positions have been filled so far. These hires require months of training, so they will not be fully available for the filing season. On the other hand, the IRS hired many new auditors and collection employees and is already sending them out on cases in the field.

These employees would be better used to review returns that have been flagged and are waiting on a decision whether they should be audited or continue being processed. They can also verify identities, withholdings and other potential choke points in the filing pipeline.

Enforcement personnel could start their careers by witnessing, firsthand, the difficulties taxpayers face as they try to comply with our complex tax laws. A win-win for all.

Venmo, PayPal and other payment apps have to tell the IRS about your side hustle if you make more than $600 a year.

Third, the IRS has faced unprecedented retirements, almost 7,000 over the past two years. Some of these retirees, who worked in customer service and submission processing functions, could be induced to return temporarily for 2022. In fact, the IRS could also bring back retired audit and collection employees to help out with the filing season.

These retirees would need minimal training and could be put to work almost immediately. If the IRS needs special hiring permissions, the Office of Personnel Management should clear the way and also dedicate the resources necessary to complete speedy background checks. After all, these are essential workers.

Fourth, the IRS should utilize technology to reduce tax return manual reviews. IRS IT employees have been giving it their all these past two years. But focusing on tasks like matching EIPs with rebate recovery credits or automating the look-back rules applicable to income for refundable credits like the earned income tax credit and child tax credit will free up front-line employees to answer phones, process mail or take on other tasks that computers cannot do. More informative automated messages when taxpayers use the “Where’s My Refund?” app may reduce some phone calls. It’s worth the extra push to provide this service to taxpayers.

Finally, as 191 representatives, 21 senators and the American Institute of Certified Public Accountants have suggested, the IRS needs to put a pause on activities that generate phone calls or correspondence. While the IRS has paused on some notices to non-filers whose returns are probably sitting somewhere in the IRS, a four-month pause on audit and collection notices will free up resources to be deployed to customer service functions and reduce the calls and correspondence that must be processed during the filing season.

Americans visited IRS refund website 632 million times last year as challenges swamp tax agency ‘in crisis’

Over the past year, much has been said about the increasing tax gap and the IRS’s corresponding need for more funding. Keeping the faith with the 160 million-plus taxpayers who are trying to comply with the tax laws will prevent the tax gap from growing more.

My modest and actionable proposals won’t solve all the problems with the filing season, but they would help. They would also demonstrate to taxpayers that the IRS is trying to minimize their pain. Because, after all, our system is based on voluntary participation. Once lost, trust is difficult, if not impossible, to regain.

Nina E. Olson is the executive director of the Center for Taxpayer Rights. From March 2001 to July 2019, Olson served as the national taxpayer advocate of the United States, whose independent organization within the IRS is dedicated to helping taxpayers resolve their problems with the agency.