Continued personnel shortages and a growing backlog of some returns significantly impeded the IRS's performance during the 2022 income tax filing season that ended last month, the Treasury Inspector General for Tax Administration (TIGTA) reported in a preliminary audit.
The report, Interim Results of the 2022 Filing Season (Rep't No. 2022-40-035), dated May 2, provided a snapshot of the IRS's handling of returns amid its ongoing administrative challenges, as measured between Jan. 31, 2022 (a week after it began processing individual returns), and March 28, 2022. It builds upon other, more targeted interim audits and previous reports and will be followed up with further examination of the full 2022 season, TIGTA said.
A major contributing factor to the IRS's difficulties was having to implement several new law provisions for the 2021 tax year, TIGTA noted, and the report includes an early assessment of the Service's accuracy in that regard. One of those provisions concerned the Sec. 36B premium tax credit, and TIGTA also released a final audit report, American Rescue Plan Act: Implementation of Premium Tax Credit Provisions (Rep't No. 2022-47-034), covering changes in that credit that were enacted by the American Rescue Plan Act (ARPA), P.L. 117-2, including for the 2020 tax year.
Staffing plans fell short
TIGTA's findings suggested that gains the IRS made in expanding its workforce as planned came too little or too late to significantly affect filing season operations. For example, as of March 15, 2022, the IRS had added 521 new employees to its Submission Processing unit, which was only 9.5% of its hiring goal of 5,473, TIGTA reported. Hiring was more successful in its Accounts Management function, meeting 76.5% of its goal of 5,000 more staff members. However, TIGTA noted, Accounts Management employees also are responsible for answering toll-free telephone calls in addition to taxpayer correspondence — and both functions further degraded during the filing season.
The number of assistor toll-free incoming calls answered during 2022 (as of March 4) was far fewer in 2022, falling to 2,688,000 from 4,444,000 in 2021 (as of March 5), with the level of service, or percentage answered, falling to 19.5% in 2022 from 27.3% in 2021. And the average speed of answering those calls increased, to 24 minutes in 2022 from 18 minutes in 2021.
Processing taxpayer correspondence lagged
Taxpayer correspondence remained an Achilles' heel, as well. As of March 19, 2022, Accounts Management's inventory included 7.6 million cases — a relatively minor net difference from the 8 million cases the function held at the end of 2021. Overaged cases within that inventory has remained an ongoing challenge, TIGTA reported. The IRS "has not taken any significant actions to address the continued lack of quality customer service it offers taxpayers corresponding with the IRS," despite TIGTA's earlier recommendations that it said could improve account service.
Unlike with other agencies and businesses serving the public, "correspondence continues to be a primary method for taxpayer communication with the IRS," TIGTA noted. "For example, taxpayers must mail correspondence to the IRS when addressing certain tax account issues, such as responding to an IRS notice or letter." According to TIGTA, the IRS had no unopened mail at the end of 2021 (however, in late December 2021, about 5 million pieces of correspondence were still being processed, National Taxpayer Advocate Erin Collins has reported) but 508,474 unopened mail items as of March 12, 2022.
Return backlog nearly static
Paper-filed and amended returns also contribute to the problem, both only slightly smaller components of unprocessed returns on the week ending March 12, 2022, compared with the week ending Dec. 31, 2021. Original returns on paper fell slightly, to nearly 4.5 million, from the 4.7 million returns at the end of 2021, while amended returns awaiting work were down to 2.24 million from 2.38 million. One potential reason is both categories of unprocessed returns at the end of 2021 were higher than at the end of 2020 and an order of magnitude greater than at the end of 2019. By comparison, original paper returns awaiting processing at the end of 2019 numbered only 183,000, and amended returns 110,443.
New laws' implementation appears generally correct
Better results were reported with respect to the IRS's implementation of law changes to individual tax credits, which included an expanded child and dependent care credit, an expanded and partially advance-paid child tax credit, an expanded earned income tax credit, and changes to the premium tax credit. TIGTA examined the accuracy of the Service's "e-file business rules" and error resolution codes as applied to the changes. TIGTA said it was still testing those business rules and error codes with respect to the child and dependent care credit and the premium tax credit.
But TIGTA's testing of rules for the child tax credit, including advance payments, "showed they are working as intended." As of March 2, 2022, the IRS had processed more than 14.9 million returns claiming $82.7 billion in child tax credits, of which $33.7 million had been paid in advance during 2021. A separate ongoing review will assess whether taxpayers correctly reconciled advance payments with their final credit amount.
Similarly, TIGTA said the premium tax credit's business rules were working as intended although it was still testing its error resolution codes.
ARPA premium tax credit changes
In the second report, on the IRS's implementation of ARPA's premium tax credit provisions more generally, TIGTA said the IRS generally correctly adjusted repayments of advance premium tax credit amounts taxpayers received for the 2020 tax year, for which ARPA retroactively removed a requirement to repay any excess advance credit. However, a "clerical error" in September 2021 resulted in erroneously excessive refunds to a few thousand taxpayers. The IRS eventually reversed those transactions for all but two taxpayers and, as of Dec. 3, 2021, had recovered $9.1 million, or 76% of the excessive refunds issued.
Also with respect to 2020 tax year returns, TIGTA identified more than 30,000 taxpayers for whom the advance premium tax credit adjustments rendered them eligible to claim additional child tax credits, but the IRS could not make that follow-on adjustment and did not initially notify the affected taxpayers to file an amended return to claim the additional child tax credit amounts. The IRS had agreed to update its website and to send affected taxpayers a notice to that effect, TIGTA reported.
Another ARPA premium tax credit change affected tax year 2021 returns: Taxpayers who received or were approved to receive unemployment compensation for at least one week during 2021 were treated as meeting the income eligibility limits for the credit, and a household income limitation was relaxed. TIGTA found that the IRS had not developed procedures to verify taxpayers' reports of receiving unemployment compensation for this purpose. Thus, TIGTA recommended in September 2021 that the IRS require documentation from taxpayers and try to identify returns with potentially questionable claims, such as where a return reported no unemployment compensation income. The IRS disagreed or partially disagreed with most of these recommendations but said it planned to verify receipt of unemployment "as part of its post-processing compliance efforts."
The AICPA continues to advocate for better IRS services; visit the webpage describing AICPA advocacy efforts to learn more.
— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.