As the tax-return filing season prepares to commence on January 29, the Internal Revenue Service IRS is facing timely criticism from its internal watchdog, the Taxpayer Advocate Service. The annual report to Congress evaluates the IRS’s strengths and weaknesses in relation to taxpayer experiences.
A recurring theme in the report acknowledges the IRS’s commendable progress in telephone assistance but highlights persistent issues, particularly in the processing of paper returns and certain refund types. Erin Collins, National Taxpayer Advocate, emphasized in the preface that, “Overall, the successes outweighed the areas of weakness in 2023, with significant improvements evident in most metrics compared to the challenges posed by the (COVID-19) pandemic.”
Can I anticipate swifter processing of IRS tax returns and refunds?
In general, yes, but the report underscores the imperative for further advancements. Although the IRS has successfully eliminated the backlog of paper-filed Form 1040 returns, certain backlogs persist, notably with amended individual returns. The backlog for unprocessed amended returns, which was approximately 500,000 in 2019 just before the pandemic, has surged to 1.9 million as of last October. The delays in handling amended returns and correspondence have a direct impact on the timely issuance of refunds.
The report notes the virtual elimination of the backlog of unprocessed Form 1040 individual returns and substantial enhancements in telephone service. However, it underscores that while the IRS efficiently handles automated tax returns, weaknesses persist in processing paper returns and communicating with taxpayers through letters.
The report attributes a significant portion of the paper backlog to the prioritization of answering telephone calls over processing amended returns and correspondence. This decision has resulted from the necessity for IRS employees to allocate their time among various responsibilities. Interestingly, the report reveals that customer service representatives dedicated approximately 34% of their time during the last tax season waiting for incoming calls.
Erin Collins pointed out in the report, “The IRS cannot easily shift employees back and forth between answering phones and processing correspondence, so unproductive employee time was the price it had to pay to improve telephone service levels. Going forward, the IRS needs to find a way to move employees between those two functions more nimbly.”
Will it become more convenient to connect with a live IRS agent over the phone?
Not necessarily. According to the report, the IRS is acknowledged for answering a higher volume of phone calls during the filing season. However, the agency still managed to respond to only 35% of the calls received at that time and merely 29% for the entire fiscal year of its operation. While this marked an improvement from the 11% rate two years prior, it’s notable that the overall number of calls to the agency saw a significant decline, plummeting from 282 million in 2021 to 93 million the following year.
Moreover, the report highlights that reaching a live IRS agent doesn’t guarantee the resolution of the issue at hand. Tax professionals also encountered delays, waiting an average of 16 minutes, with customers sometimes incurring the associated costs. Approximately 500,000 professionals prepare returns for more than 85 million households, as outlined in the report.
The inconvenience faced by tax professionals in having to call back repeatedly and endure wait times not only inconveniences them but also results in additional costs to taxpayers for the time billed by their tax professionals while waiting on hold, the report found. Despite these challenges, the IRS has expressed its commitment to maintaining improved phone service and pledges to limit average wait times to five minutes or less on its main helpline. Additionally, the agency plans to introduce a call-back option for most taxpayers if the anticipated wait exceeds 15 minutes.
How are individuals affected by identity theft coping?
Unfortunately, their situation is less than ideal, as highlighted as a particular area of concern in the report. Last year, nearly half a million taxpayers with pending cases in an IRS victim’s assistance unit endured an average wait of 19 months for the agency to address their identity theft issues. This included a substantial number of lower-income individuals eagerly anticipating refunds.
A significant majority of taxpayers whose cases were resolved by the unit had adjusted gross incomes indicating that they were either below or just above the federal poverty level. In response, Collins urged the IRS to elevate the priority given to expeditiously resolving these cases.
Were there any other notable issues highlighted in the report?
Certainly, and a significant concern revolves around the employee retention credit, a pandemic-relief measure applicable to eligible employers who paid wages from March 12, 2020, through 2021. The report reveals that employers filing eligible employee retention credit (ERC) claims have frequently faced delays of six months or more in receiving their credits or refunds.
Among these claimants are non-profit organizations providing essential services, including medical care, relying on the refunds to sustain their operations. As of early December, the IRS grappled with a backlog of approximately 1 million ERC claims, acknowledging that a portion of these may be fraudulent or non-qualifying.
The report cautions, “If (the IRS) pays claims quickly without adequate review, it could pay billions of dollars to nonqualifying persons. If it takes the time to review claims carefully, eligible employers will experience significant delays in receiving the credit, and in extreme cases, employers who need the funds immediately could go out of business.” It’s worth noting that this credit is no longer available and was never accessible to individual taxpayers.