National Taxpayer Advocate Erin M. Collins released her Annual Report to Congress on Wednesday, calling 2021 "the most challenging year taxpayers and tax professionals have ever experienced."
Lengthy delays by the IRS in processing tax returns and taxpayer correspondence, overwhelmed telephone assistance, shortcomings in the Service's relatively new online taxpayer tools, and difficulties even for Collins's own Taxpayer Advocate Service (TAS) in fulfilling its mission all combined to make the year a historic ordeal, she said.
The report assesses the IRS's performance in serving taxpayers and protecting their rights, identifies the most serious problems in federal tax administration, and highlights TAS's operations. It discusses what Collins identifies as the 10 most serious problems taxpayers encountered and analyzes the most-litigated tax issues during the year. The annual report is summarized in an executive summary and IRS news release. At the same time, Collins released her 2022 "Purple Book," Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration.
Collins described an IRS drowning in paper. As of late December 2021, the Service was processing a backlog of 6 million original paper individual returns; 2.3 million amended individual returns; 2 million Forms 941 and 941X, Employer's Quarterly Federal Tax Return and Adjusted Employer's Quarterly Federal Tax Return; and about 5 million items of taxpayer correspondence.
Unprocessed returns often delay refunds for low-income taxpayers depending in some cases for basic subsistence on the earned income tax credit, child tax credit, and other tax benefits, she noted. The correspondence backlog creates cascading problems. When a taxpayer has responded to a notice but the IRS does not process the response, an automatic action can then be triggered, taking an adverse action or withholding a refund, she said. All told, the IRS took an average of 199 days during 2021 to process the 6.2 million taxpayer responses to proposed tax adjustments. In fiscal 2019, that average time was 74 days.
Telephone service was "the worst it has ever been," Collins said, with only about 11% of callers getting through to a customer service representative. The average time waiting for those successful calls to connect was 23 minutes.
The IRS's online tool "Where's My Refund?" did not provide information on unprocessed returns or explain reasons for delays, where a return stood in the processing pipeline, or tell what actions taxpayers could take to expedite refunds, Collins said.
To its credit, however, the IRS deployed new programs mandated by Congress, issuing 478 million economic impact payments totaling $812 billion and over $93 billion in advance child tax credits to more than 36 million families, Collins noted. Moreover, it did so while its workforce was 17% lower than in fiscal 2010.
Collins recommended that the IRS use scanning technology to reduce its dependence on having staff type information from paper returns and correspondence into its systems and deploy a callback feature on its phones. She also suggested, as she has previously, that the Service improve its online taxpayer accounts and allow taxpayers to communicate by secure email with the IRS. And she recommended the IRS website feature a weekly dashboard on its performance and delays.
The Purple Book makes 68 legislative recommendations that include:
- Provide sufficient funding for the IRS to improve taxpayer service and modernize its systems.
- Extend the three-year statute of limitation on refunds to any administratively postponed general filing date. Taxpayers who filed a return by April 15, 2017, for example, may have assumed they had until the 2020 filing date, July 15, to claim a refund on the earlier return, but the ability to do so had expired on the regular filing date.
- Expand the Tax Court's jurisdiction to hear refund cases. Generally, taxpayers seeking a refund of tax paid must now file suit in district court or the Court of Federal Claims.
- Require the IRS to work with tax software companies to incorporate scanning technology for individual income tax returns filed on paper.
- Require math error notices to describe the reason for the adjustment more specifically and inform taxpayers they may request abatement within 60 days, and require them to be mailed by certified or registered mail.
— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.