The IRS is kicking off the approaching tax season with a backlog of at least 10 million unprocessed returns from last year, according to a new report from the nationwide taxpayer.
The pile of returns that remains come from the “most challenging year taxpayers and tax professionals have ever experienced,” the attorney, Erin M. Collins, wrote in her annual report.
While the backlog isn’t much different from last season, it’s a much higher number than the unprocessed returns the IRS typically dealt with before the pandemic.
A major reason for the pileup, according to the report, is that the federal government tasked the IRS with conducting various stimulus payments and other programs during the pandemic. That meant that the agency, which has seen its budget and staff shrink in recent years, had to reallocate a lot of resources to implement those financial aid programs.
Those factors led to a “horrific” filing season in 2021 from the taxpayer’s standpoint, Ms. Collins wrote in her report, sent to Congress on Wednesday. Last year, the vast majority of taxpayers — 77 percent — received refunds on their 2020 tax returns, but tens of millions of them experienced delays.
“Paper is the IRS’s kryptonite and the agency is still buried in it,” Ms Collins said in a statement, referring to the millions of paper returns that make up the bulk of the backlog. The Taxpayer’s Office, which Ms. Collins directs, is an independent entity within the IRS that focuses on issues related to taxpayers’ rights and services.
The IRS itself warned taxpayers this week that staffing shortages and backlogs would translate into another frustrating filing season, starting Jan. 24 and running through April 18 (in most states).
In a briefing on Monday, Treasury Department officials highlighted the lack of resources at the IRS and said lower service levels should be expected, including the time it will take for staff to answer calls from taxpayers with questions. Treasury officials noted that in the first half of 2021, fewer than 15,000 employees were available to handle more than 240 million calls — one person for every 16,000 calls.
Officials blamed Republican lawmakers for budget constraints, which have stalled efforts to increase funding for the agency.
The Biden administration wants to give the IRS an additional $80 billion over ten years to expand its workforce, upgrade its technology, and improve its enforcement and customer service capabilities. That request is part of the administration’s Build Back Better Act, which has stalled in Congress.
“Additional resources are essential to help our employees do more in 2022 — and beyond,” the IRS commissioner Charles P. Rettig said in a statement Monday.
Ms. Collins reiterated the agency’s recommendation that Congress give it enough money to do its job. According to the report, the IRS’s workforce has declined 17 percent since 2010. The workload, measured by the number of individual returns, has risen from 142 million in 2010 to 169 million last year, an increase of 19 percent.
Over the past two years, the agency has been charged with administering several pandemic-related programs, including three rounds of stimulus (totalling 478 million payments worth $812 billion) and $93 billion in prepayments for the expanded child tax credit to more than 36 million families.
“An irony of the past year is that, despite the challenges, the IRS has performed well under the circumstances,” wrote Ms. Collins.
By the end of December, the IRS hadn’t finished processing six million original tax returns, 2.3 million amended returns, more than two million quarterly employer returns, and five million pieces of taxpayer correspondence — with some entries dating back to April and many taxpayers. who are still waiting for restitution, the lawyer’s report said. By contrast, there are fewer than a million unaddressed returns in a more typical year, according to Treasury officials.
Even millions of electronically filed returns — which usually flow faster through the system — were suspended during processing because of discrepancies between the amounts claimed on returns and what the IRS had recorded.
The problem was most common with the clawback rebate, which taxpayers claimed when they failed to receive some or all of their economic stimulus payments from the previous year. Those returns had to be manually reviewed by the agency, resulting in more than 11 million calculation error reports. When the taxpayer disagreed with the error and filed a response, the report said, it went into the IRS’s paper processing backlog, further delaying the refund.
Ms. Collins wrote that these discrepancies are likely to reappear this tax season – this time for the third round of stimulus payments, issued in March, and the new advanced child tax credits – resulting in more delayed filings. The IRS tries to address those problems by sending notices to taxpayers who have received the stimulus and credit payments, showing how much they received.
Alan Rappeport reporting contributed.