The IRS entered the 2022 tax season with significant operational challenges including an enormous backlog of unprocessed returns and chronic issues with customer service quality. While it’s typical for the agency to begin tax season with up to about one million unprocessed returns, this year the number increased to 11.7 million. Earlier in March, Deputy Secretary of the Treasury Wally Adeyemo and IRS Commissioner Charles Rettig announced several changes, including a sharp increase in hiring, designed to get the agency current by the end of year. To help clients and friends of the firm, Barnes Dennig has provided a summary of the key details below.
Reasons for the IRS Backlog
Each year going into tax season, it’s normal for the IRS to have a backlog – typically this is less than one million returns. Because of the pandemic, the agency ended the 2021 filing season with more than 35 million unprocessed returns. The current filing season began with a record-breaking 11.7 million unprocessed returns. This number was significantly lower than just months before, but it set the stage for another tumultuous filing season.
For context, the IRS budget is 20 percent lower now than it was in 2010, despite having the same size workforce as in the 1970s. Since that time, the agency has handled more work and far more complex tax laws.
IRS reports that in 2021, almost 200 million phone calls were expected to be handled by less than 15,000 workers – or one person to handle 13,000 calls. It makes sense that only 11 percent of taxpayers who tried to call the IRS in 2021 got through; and of those who did, the average wait time was 23 minutes.
Operational challenges created by the pandemic further strained the IRS in recent months. COVID-19 didn’t create new problems as much as it exposed longstanding ones. Still, the IRS distributed more than $1.5 trillion in COVID-19 relief payments while managing existing operational responsibilities. In fiscal year 2021, the IRS collected $4.1 trillion on a budget of only $11.9 billion – a 345:1 return on investment.
Despite the agency and its employees doing their best, the IRS still ranked dead last among all federal agencies. And while a large part of this ranking can be attributed to low funding and operational challenges, it’s also important to consider that more Americans interact with the IRS than any other federal agency.
2022 IRS Budget Increase
The House of Representatives, in its omnibus spending bill, allocated $12.6 billion to the IRS, representing an increase of $675 million over fiscal year 2021. It’s the largest funding increase for the IRS in 20 years. The increase addresses one of the Taxpayer Advocate’s four legislative recommendations in its 2021 report to Congress.
In all, current fiscal year spending increases are allocated as follows.
- $225 million will go to taxpayer services. (9 percent increase)
- $225 million will go to enforcement activities; of that amount, the majority is slated for paper amended returns and return adjustments. (4 percent increase)
- $173 million to support operations.
Additionally, the IRS has received $21 million for new technology, which is a 40 percent increase from last year, and extra funding to upgrade business systems. Finally, there will also be money allocated to hire 10,000 new employees as well.
Reducing the Backlog
The extra funding, while less than what was originally proposed, will help the IRS meet its ongoing demands.
Increased funding will help the agency reach more taxpayers. One way to do this is to help prevent user errors before they occur. Most mistakes are the result of small errors; however, even a return with one error needs to be set aside and processed manually. If the return is accurate, it can often get processed within 21 days.
To better help taxpayers with accurate returns, the IRS is sending extra information (like a calculation of economic impact payments and child tax credit advances) and providing help online, in-person, and over the phone.
Online, taxpayers have expanded self-service portals for payment, identity protection PINS, and updating personal information. In-person, there are extra hours and manpower allocated to Taxpayer Assistance Centers throughout the country. Over the phone, customer callbacks have increased by 70 percent. 2,000 contractors have answered 40 million phone calls about economic impact payments and child tax credit advance payments.
Technology is also part of the IRS’s plan to decrease the backlog. For example, they are using a new automated tool to increase efficiencies when dealing with return errors. The IRS also temporarily stopped sending certain automated common notices to taxpayers to avoid confusion related to unprocessed returns. Online and over the phone, taxpayers can use new automated tools to access support, like chatbots and online live assistance.
IRS Growth Plans
There are several steps that the Treasury Secretary and IRS Commissioner announced to curb the backlog and improve taxpayer customer service, starting with hiring.
In March, the IRS held job fairs across the country to fill 5,000 open positions. These positions are direct hire and mostly entry level, which means eligible candidates will be fast-tracked through the hiring process. An additional 5,000 employees will be added over the next year.
Currently, more than 6,000 IRS employees are required to work overtime. These employees are assigned original returns. Overtime is also available but not required to around 10,000 employees assigned to process amended returns and taxpayer correspondence. The overtime includes a night shift to work on processing.
The IRS had already started shifting employees around to process amended returns and taxpayer correspondence. In February, around 800 experienced employees were added to a surge team to address the backlog. Now, that effort is continuing for original paper returns. More than 700 employees are being shifted to new surge teams, and at full capacity, these new teams are expected to close millions of cases per month.
“Since the pandemic began, IRS employees have been called on to go above and beyond for the American people, and they have met the moment. But they’ve had to do so without adequate resources and funding, which is why the agency faces the challenges that it does today,” said Deputy Secretary Adeyemo.
As the IRS works to get out of its massive backlog, Congress will be looking for reports on a range of subjects, like enforcement and IT investments. Existing measures to curb the backlog will not address long-term issues, but they do provide hope for tax professionals and taxpayers alike that next year, dealing with the IRS won’t be nearly as frustrating.
The additional funding is an important first step necessary to address the challenges which persist at the IRS. Concomitantly, as new resources become available, it is expected the level of customer service will also increase. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Barnes Dennig can help. For additional information call us at 513-241-8313 or click here to contact us. We look forward to hearing from you soon.