IRS still has a ways to go to modernize and improve services, watchdog report says

The Internal Revenue Service watchdog said Wednesday in a report to Congress that the crisis is still far from over, with chronic problems in several areas, including a long battle with paper returns and flawed customer service. It suggested that there were weaknesses.

This year’s National Taxpayer Advocate report praised the IRS’ “all hands on deck” approach for the 2023 tax filing season, citing the $80 billion increase in federal funding from the Inflation Control Act, continued hiring efforts, new Digital solutions helped address processing and customer service deficiencies.

Still, thousands of U.S. taxpayers, especially victims of tax-related identity theft, continued to face delays last year, with some taxpayers still waiting an average of 19 months for the IRS to resolve their issues. The report found that

Tax Advocate Erin M. Collins called these delays “unconscionable” and urged the IRS to prioritize resolving these cases as soon as possible.

According to the report, employee shortages and recruitment delays are also contributing to some of the backlogs that will continue into 2024, with the Ministry of Finance’s target of reaching the “85% level”. , it turns out that IRS employees are extremely busy, from processing returns to fielding calls to taxpayers. Please call our toll-free number and use our service.

Although the IRS met that goal, the metric itself was misleading and excluded many types of calls that the IRS receives and routes to other departments. Only 29% of all calls received in 2023 were answered by IRS employees, according to the report.

“When I released the National Taxpayer Advocate’s 2020 report, I wrote that the IRS can almost always process ‘anything that can be automated effectively.’ And when I released the 2021 report, I wrote, ‘Paper is the Kryptonite of the IRS,”’ advocate Erin M. Collins said in a press statement. “These observations remained true in 2023.”

Collins added: “The areas where taxpayers continued to experience delays were primarily those where employees were required to process tax returns and communications with taxpayers.”

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Processing delays occurred due to employee changes.

After years of struggle during the most recent filing season, the IRS finally processed a massive 1,040 paper-filed applications through the end of 2023.

The agency has been drowning in paper since the pandemic and had to manually transcribe 17 million 1040 forms filed on paper by the end of 2021. That number dropped to just 4.7 million at the start of the 2022 filing season, which was eventually cleared. last year.

“Overall, the magnitude of our successes in 2023 outweighed our areas of weakness, with most indicators showing significant improvement from the depth of the pandemic,” Collins wrote.

Still, backlogs in processing amended individual tax returns (Form 1040-X), amended tax returns, and correspondence continue. As of October 2023, the IRS had an inventory of 6.2 million outstanding amended returns, virtually unchanged from December 2022.

At the same time, taxpayer communications and related cases more than doubled during that period, from 1.9 million to 4.3 million. The proportion of communications cases classified as “excess” in 2023 also reached its highest level in years, with nearly 70% of pending cases exceeding normal processing times as of October.

“Delays in processing amended returns will result in delays in receiving refunds,” the report said. “The majority of the paper inventory backlog [is attributed] This is in response to the Treasury Department’s decision to prioritize answering telephone calls over processing amended returns and correspondence. ”

“I’m waiting for the phone to ring.”

According to Taxpayer Advocate, the IRS was better at responding to taxpayer calls in 2023 than in previous years. However, there is still a long way to go.

Customer service representatives shifted from processing returns to answering phones to meet service goals, but in many cases they were just “sitting around waiting for the phone to ring.”

“Because the IRS cannot easily move employees back and forth between answering calls and processing correspondence, we have had to pay employees for their nonproductive time to improve telephone service levels,” Collins said. is writing.

In the 2023 filing season alone, IRS customer service agents spent 1.27 million hours (34% of their time) waiting to receive calls. This equates to more than 650 employee years that these employees could have been processing returns, the report said.

“Going forward, the IRS will need to find ways to move employees more nimbly between these two roles,” Collins wrote.

Identity theft victims have been waiting more than a year for their tax refunds

Taxpayers who are perhaps most in need of government assistance have had to wait the longest.

Last year, nearly 500,000 taxpayers who self-reported unresolved cases of identity theft waited an average of nearly 19 months for authorities to resolve the issue and issue their tax refunds.

The IRS ended the year with an inventory of approximately 484,000 identity fraud cases, according to the report.

“This would be front page news, and it should be, were it not for the numerous challenges affecting large groups of taxpayers,” Collins wrote. “Many taxpayers rely on tax refunds to cover their living expenses, especially low-income taxpayers who benefit from the Earned Income Tax Credit. [approached] $7,000 for tax year 2022. ”

According to the report, 69% of taxpayers whose identity theft cases were resolved had adjusted gross incomes below 250% of the federal poverty level. These delays were also largely due to her IRS prioritizing phone service.

The IRS has redeployed 572 employees who previously handled identity theft cases to answering calls during the 2023 filing season, according to the report.

“The IRS has a high mountain to climb.”

The IRS appears poised to take on that challenge this year, expecting more than just individual tax returns to be filed by this year’s tax deadline of April 15, 2024.

The IRS plans to raise $80 billion in new funding to replace and rebuild some outdated technology (some systems are more than 25 years old) and introduce scanning technology. Historically, IRS employees have manually transcribed paper returns.

The IRS also announced plans to ramp up hiring in August 2023, setting a goal of adding 20,000 new employees by the end of 2024.

Still, the National Taxpayer Advocate also points to other areas that need improvement.

• Prioritize improving and promoting taxpayers’ online accounts. In 2023, individual taxpayers filed 160 million income tax returns, but only 16.8 million users, or 10%, accessed their accounts online. .

• Improve your ability to hire, attract and retain qualified employees. Selected candidates will have to wait more than three months for background checks and related onboarding prerequisites to be completed, according to the report. The report also noted that federal salaries are not competitive for some jobs.

• Allows all taxpayers to electronically file their federal tax returns. In 2024, the IRS will begin a pilot with a limited range of taxes.

“The reality is that the IRS has a high mountain to climb if it is to achieve its goals of rebuilding the agency, modernizing its systems, and providing taxpayers with the quality service they deserve,” Collins wrote. .