“During 2021, tens of millions of taxpayers were forced to wait extraordinarily long periods of time for the IRS to process their tax returns, issue their refunds, and address their correspondence,” states the report, submitted to Congress by Erin M. Collins, the national taxpayer advocate. “The IRS is in crisis.”
The report continues: “There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous. … 2021 was the most challenging year ever for taxpayers.”
Treasury Department officials warned Monday that this tax filing season could prove “frustrating” for millions of taxpayers as they try to file their returns and receive tax refunds from the IRS. Americans can begin filing their 2021 tax returns later this month, and the deadline is April 18. IRS officials have defended their record — and won praise from some lawmakers — by pointing to the largely successful disbursal of stimulus payments and the expanded child tax credit in the middle of the pandemic.
Treasury officials on Monday also pointed to the Biden administration’s efforts to increase funding for the IRS. But with those plans stalled along with President Biden’s broader economic agenda, Treasury officials said, taxpayers should brace for a difficult filing season. The national taxpayer advocate report documents extensive delays last year for refunds, overwhelmed assistance help lines and myriad other ways in which the IRS failed taxpayers last filing season. Many tax experts think this upcoming year could be just as bad — or worse.
Here are four takeaways from the advocate report that highlight the IRS’s challenges:
1. The IRS was inundated by a massive backlog of returns and refunds.
The IRS started the last filing season behind and never fully recovered. It entered last filing season with a backlog of 12 million returns from the year before — and did not ultimately clear the 2019 returns until June 2021.
As the IRS struggled to clear the old backlog, a new one grew that is now spilling into the current filing season. The IRS received 17 million paper returns for Form 1040 — the traditional individual income tax return — which it has been taking at least eight months to process.
The IRS website says that as of Dec. 23, 2021, it still had 6 million unprocessed individual returns and that as of the start of this month, it still had more than 2 million unprocessed amended tax returns, a separate category. The taxpayer advocate says the IRS also has more than 2 millionunprocessed employer’s quarterly returns and about 5 million pieces of taxpayer correspondence left to process.
The IRS is typically much faster at processing returns electronically, but roughly 10 percent of returns are still filed by paper because of documentation requirements or other reasons. Also, millions of electronic returns were suspended during processing last year because of discrepancies between what the taxpayer claimed and IRS records. The IRS reported more than 11 million “math error notices” issued to taxpayers over discrepancies related to stimulus payments alone, according to the watchdog report. Those delays worsened the agency’s backlog.
The IRS sent more than 14 million math error notices and other proposed adjustments to taxpayers, and received 6.2 million messages from taxpayers in response. The IRS took an average of 199 days to respond to taxpayers’ proposed adjustments, compared with the average of 74 days it took the agency to respond in the year before the pandemic.
2. Taxpayers were so frustrated they kept refreshing ‘Where’s My Refund?’
Taxpayers in 2021 flooded the IRS with calls, questions and complaints as they grew frustrated at the unexpected backlog and delays.
In particular, Americans visited IRS.gov roughly 2 billion times — compared with just 651 million times in 2019. The number of visits to the IRS’s “Where’s My Refund?” page ballooned to 632 million in 2021, a nearly 70 percent increase from the 369 million recorded in the year before the pandemic.
The IRS’s “Where’s My Refund?” page does not provide taxpayers with information about their unprocessed returns, or give status updates, reason for delays and where returns stand in the “processing pipeline,” the watchdog report says. The tool also does not tell taxpayers what they may need to do to expedite their refunds.
“For taxpayers who experienced significant refund delays, the tool often did not do its job,” the taxpayer advocate stated in a news release.
The watchdog recommended that the IRS update its website with weekly status reports so that taxpayers know where returns stand in the pipeline and when they can expect a response.
3. The IRS response rate to taxpayer phone calls plummeted to 11 percent.
The watchdog report also found that the IRS’s telephone service was “the worst it has ever been,” because of a combination of a ballooning number of calls and a strained workforce affected by the pandemic.
In 2021, the IRS received 282 million calls, compared with just 100 million in 2019. The agency’s workforce did not keep pace with the higher demand. Although the IRS answered more calls than recently, it took only 11.4 percent of them — down from 29 percent the year before the pandemic. The IRS reported an average hold time of 23 minutes.
Congress created the Taxpayer Advocate Service to act as a backstop for taxpayers who need help with the IRS. Its caseload jumped by 58 percent from 2017 to 2021, even as its budget rose by roughly 6 percent. The number of referrals from members of Congress to that service also increased roughly sixfold.
The watchdog report called on Congress to provide more funding for the IRS to hire dedicated staffers to help taxpayers who call for help.
4. The IRS workload is up by close to 20 percent despite budget cuts.
Because of efforts led by Republicans primarily during the Obama administration, the IRS’s budget has been cut by roughly 20 percent, when adjusted for inflation, from its level in 2010. That has corresponded with a roughly 17 percent cut in the size of the agency’s staff. Treasury officials also reported Monday that the IRS has the smallest number of auditors since World War II.
But the agency’s budget cuts have come as its responsibilities have multiplied. The taxpayer advocate reports that the IRS helped roughly 19 percent more individual taxpayers in the same period in which its budget fell by 20 percent.
“This imbalance has left the IRS without enough resources to meet taxpayer needs, let alone to invest in additional personnel and technology,” the report states.