Tax Processing Issues Continue to Plague IRS | Citizens Against Government Waste

Tax Processing Issues Continue to Plague IRS

The WasteWatcher

Just in time for Tax Day, the Government Accountability Office (GAO) released a report examining issues faced by the Internal Revenue Service (IRS) during the 2021 tax filing season.  The April 11, 2022, report determined that the most significant problems facing the IRS are the massive backlog of tax returns that date back to the 2020 tax filing season and poor customer service, including waiting on hold for several hours to speak to a customer service representative and providing limited information about the status of refunds through the “Where’s My Refund?” online tool.  As the IRS continues to respond to these problems, taxpayers expecting a quick refund for their 2021 taxes are unlikely to get it in a timely manner. 

 Despite the massive backlog that the IRS is facing, along with other problems like outdated information technology systems and privacy violations, President Biden’s fiscal year 2023 budget includes significant increases for the IRS.  The Build Back Better Act passed by the House provides $80 billion to hire more than 87,000 new IRS enforcement agents to supposedly increase revenue, and members of Congress have proposed that the IRS act as both the tax preparer and collector through a tax preparation system to be created by the agency.  This proposal was most recently introduced in 2019 by Sen. Elizabeth Warren (D-Mass.) and Rep. Brad Sherman (D-Calif.) as the Tax Filing Simplification Act of 2019. 

This idea would expand the IRS’s power and further delay the processing of tax returns.  The IRS does not know anything about changes in income, marital status, employment, or the revenue and expense of any business until taxes are filed.  Sending a pre-filled return and a bill to taxpayers would force them to disprove what the agency decides rather than sending the IRS what only taxpayers know about their finances and then letting the agency review this current information.  Proponents of the Warren-Sherman bill claim that filing taxes is too costly and time-consuming.  However, up to 70 percent of taxpayers are eligible to file their taxes free of charge using the IRS Free File program, which connects taxpayers to private companies to help with their returns. 

The GAO estimates that the IRS received 195 million calls during the 2021 tax filing season, compared to 39 million in the 2019 tax filing season.  The shift to remote work when the COVID-19 pandemic began meant that fewer customer service representatives were working in an office.  Taxpayers faced severely long caller wait times and were left in limbo regarding their tax obligation and status.  The IRS has attempted to solve its staffing issue by hiring more than 3,000 customer service representatives as of September 2021.  However, these employees were required to undergo 14 weeks of training before they could assist taxpayers, so they were not available to help taxpayers until the IRS’s peak busy season had ended.  

 The delay in processing tax returns also cost the IRS billions of dollars.  Under current tax law, the IRS must pay interest to any taxpayer who receives their tax refund more than 45 days late.  The GAO reported in March 2021 that the IRS paid $3 billion in interest on individual and business refunds in fiscal year (FY) 2020, a 50 percent increase compared to the $2 billion in FY 2019. 

 The GAO report included several recommendations to address tax processing issues, like having the IRS commissioner take steps to reduce the amount of refund interest paid and provide a more accurate time frame for resolving the agency’s correspondence backlogs.  While it was not mentioned in the April 11 report, many prior reports have proposed that the IRS should update its woefully outdated information technology (IT) systems, including an October 7, 2020, GAO report that noted “operational challenges” have impeded the agency’s ability “to effectively carry out its responsibilities,”  and a December 2021 Treasury Inspector General for Tax Administration report, which stated that “weaknesses within the IRS’s computer operations could begin to adversely affect its ability to meet its mission of helping taxpayers comply with their tax responsibilities and enforcing the tax laws with integrity and fairness to all.” 

The IRS has been told repeatedly how to become more efficient, effective, and responsive.  These problems cannot be solved with more money or more reports that rehash longstanding and unresolved issues.  Filing taxes is already a stressful endeavor and waiting months for returns to be processed and refunds to be issued adds unnecessary and avoidable angst.  It is time for the agency to do better.


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