On Wednesday, National Taxpayer Advocate Erin Collins delivered an annual report to Congress, saying that the IRS is in better shape than at this time a year ago. Now, to talk more about those issues and offer advice for taxpayers and tax practitioners, Collins is appearing on the Journal of Accountancy podcast.
The interview was recorded Dec. 20.
What you'll learn from this episode:
- An overview of the role of the national taxpayer advocate.
- Why Erin Collins mentions catching "more flies with honey than you do with vinegar."
- Her assessment of the current IRS backlog of unprocessed returns.
- The top issues that taxpayers have for contacting Collins's office.
- Her advice for taxpayers and tax practitioners in this filing season.
Play the episode below or read the edited transcript:
— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.
Neil Amato: Hello, listeners. This is Neil Amato with the Journal of Accountancy. We will get to our episode in just a bit, a conversation with National Taxpayer Advocate Erin Collins.
First, I want to say thank you to you for making the Journal of Accountancy podcast a regular part of your routine. We recently published our 300th episode, and without the listener growth we've had, that wouldn't have been possible. So, thanks. A reminder to subscribe if you haven't already. Leave us a rating and review on Apple Podcasts or wherever you find to the show, and thanks again.
Erin Collins is my guest on the Journal of Accountancy podcast. She is the national taxpayer advocate. Erin, we are happy to have you on the show. Thanks for being here.
Collins: Thanks for inviting me, Neil. I'm happy to be here as well.
Amato: We're recording in late 2022, December 20th to be specific. Erin, can you first tell us some about the role of the national taxpayer advocate for those not familiar with it?
Collins: Sure. The role of the chair that I sit in, the national taxpayer advocate, and the office that I lead, the Taxpayer Advocate Service, were created by Congress over 20, 25 years ago. What it is is really has two aspects to it.
One is we are the safety net to assist taxpayers one-on-one dealing with IRS problems. The second piece of our mission is we are what we call the voice of taxpayers. Taxpayers who have systemic issues — those are issues that impact multiple taxpayers.
We can advocate with the IRS, make recommendations for change, and we can also advocate with Congress to make requests for legislative change to improve issues with respect to taxpayers. It's got a very broad mission. As we like to say, we represent all taxpayers, and there are many, unfortunately, the last few years, who have needed our service.
Amato: Exactly. We'll get into some of those service needs in a bit. It's an interesting role. I think you're a government employee working within a division of the IRS, but reports distributed by your office are sometimes critical of the operations. What's that dynamic like, and how do you manage it?
Collins: It's a balancing act. I grew up in a family where my mother would always say, "You catch more flies with honey than you do with vinegar." That turned into my business style is, I think you can advocate without being confrontational, and I think with the role that I have being within the IRS, again, as you pointed out, Congress who requires us to point out the good as well as the bad, it's challenging. You want to make sure that you don't burn a bridge, but you're still being a strong advocate for taxpayers. It's a delicate balance that you have to walk.
Amato: One issue that you've discussed, often including at the AICPA & CIMA National Tax Conference earlier in the fall, is the IRS service backlog. How do you feel the IRS is doing to make progress on that backlog of unprocessed returns.
Collins: It's been a very challenging time for both practitioners as well as taxpayers for the last couple of years. At the end of the 2021 filing season, so going into January, the IRS had about 29 to 30 million both paper and e-filed returns that were waiting for processing, or they were, for example, in suspense and those would be returned, such as potential identity theft or those that had an inconsistency with IRS records that the IRS is still trying to resolve.
That is an extremely high number and not typical for the IRS year by year. At the end of April, they had the number had been decreased, but we're all familiar with during tax filing season, they also get a lot of new returns being filed. It took them until June of 2022 to clear off the 2021. That's getting confusing, but in essence, it took until June to clear off last year's tax filings. They started in June with the returns that were filed in January.
As of October, they still had between 19 and 20 million returns waiting to be processed. The good news is fast-forward to the end of December, IRS has done a really good job getting that number lower. It's still not where it needs to be, there are still millions of taxpayers waiting, but the number is a lot closer to the 15 million range of unprocessed returns, as well as those in suspense. That also includes amended returns and correspondence.
It has dropped at least in half. But again, going into a new filing season, that's still way too high, and it's going to take them a little bit of time to get through those before they start processing next year's or the 2023 filings coming in the door. A lot of numbers, sorry, it's confusing, but the good news is they have reduced the backlog considerably. The bad news is they still have a backlog that's being carried into the current filing year.
Amato: What else is there that the IRS can be doing to get to that, "healthy level," to use the words of former IRS Commissioner Charles Rettig?
Collins: I'm not sure how we define healthy. I always think about if you're the taxpayer waiting for your refund, it doesn't matter if the IRS is within the norm or not. You've been waiting three, six, nine, 12 months for that refund. In your opinion, the IRS is not healthy. But what they need to continue doing is to get that paper processed and get that backlog behind them for all purposes. We cannot go into more filing seasons or continue to have a backlog year after year after year. We need to put this behind us once and for all.
Amato: The IRS was allocated $80 billion over 10 years through the Inflation Reduction Act. How do you see that money being deployed? Or what do you see the IRS saying in the report? I guess it's supposed to deliver to Treasury about those plans by the February deadline.
Collins: The good news is, I typically focus on the service side as well as the IT side because that's really what makes a difference to most taxpayers. Unfortunately, the largest portion of the funds was allocated to enforcement. But if we look at the service and the IT, in my opinion, it is a true game-changer.
If the IRS spends its money wisely and they're able to do what we've been discussing internally for years with respect to IT and service, IRS will be a different place. The only question is, will that be one year, two years, five years down the road?
But I am optimistic from a lot of the discussions that have taken place as to where the IRS intends to go. Like all taxpayers, I'm eager to see the final plan that comes out of the IRS in February. We are recommending that the secretary release it publicly. I suspect it will be released to Congress and to the public, but I'm not sure what the timing is going to be on that.
Amato: Now, in September, Treasury Secretary Janet Yellen promised that the IRS would have better staffing of its Taxpayer Assistance Centers, would answer 85% of calls, and that the IRS would, "Firmly move into the digital age," in the form of automated scanning of paper returns, that type of thing. Those are all good things. Will they be able to achieve those goals?
Collins: I wholeheartedly agree with the secretary. Those are goals that the IRS should be establishing and making year after year after year. It should not be, this is atypical. These should be their normal standards. The challenge I have is the IRS has had extreme difficulties the last three years both hiring what we refer to as customer service representatives. Those are the individuals that most people are familiar with that answer the phones.
But what a lot of people aren't familiar with is they are also the ones that process a lot of the paper. Amended tax returns, correspondence, other paper documents tend to be processed by the customer service representative. They wear two key hats in tax administration. My concern is for the last couple of years, IRS has been answering and low digits like 10 to 11%, 13% of phone calls. That is extremely low, that is unacceptably low.
TAS has been advocating for years that the IRS get to an 85% level of service. I don't disagree. My concern is based on the staffing they currently have in order to achieve an 85% level of service, my concern is the IRS is going to have to decide do they answer the phones versus process the paper.
I think they need to take a balanced approach so that, come next April, I don't want to say we achieved answering telephones and assisting taxpayers at the expense of creating a new backlog. That's going to be a real challenge the IRS is going to have to deal with.
Amato: Now related to the funding and some of what may happen in the future, how does the process of the vetting of a new IRS commissioner play into that? What I mean is, how does the IRS commit to what it's going to do before the leader is officially on the job?
Collins: I think that's an excellent question. We've asked the question internally as well because I think IRS is moving forward. They are drafting the plan as we speak, and there's a lot of really good information in that plan, things that TAS and myself have been advocating for years, such as having a more robust online account, having the Tax Pro Account where I would love to see the IRS give tax practitioners the ability to go into one portal and see all of your client's information. That to me would be a huge game-changer. Those are things that are on the table the IRS is discussing.
But if I were the incoming commissioner, I would think I'd want to have a say in those plans and decisions. It'll be interesting on timing. Do they put the potential commissioner forward early January to get him on board quickly, or will the plan be submitted to the secretary before he's through the door?
That'll be interesting. I think everyone's been asking that same question. What are the dynamics? Unfortunately, I don't have that answer. They're not calling me and asking my two cents, but I think it is a question that a lot of people have is, if I'm coming in as the incoming commissioner, I'd like to have a say what's in that plan.
Amato: We've touched on a few technology topics. Here's another one — callback technology. First, can you explain the IRS's use of it, what exactly it is, and then what problems it solves and ways it could be better.
Collins: I think a lot of us are familiar with us in our day-to-day lives because a lot of companies and industries are offering this capability. But in essence is if you were to call, let's say the toll-free line and unfortunately get through, which is usually a No. 1 problem everyone's having currently. But with an 85% level of service, your call will be answered if you can get through, but the customer service representatives are busy at the moment, so to speak.
Let's say you have 15,000 customer service representative, but there's 18,000 calls coming in. What they would offer taxpayers is an opportunity to in essence have the IRS call you back when they're available.
It's a great service. You don't have to sit there and listen to that lovely music while you wait for the IRS. The challenge that a lot of people aren't focused on, it's only as good as the number of customer service representatives available. Last year was a very difficult year for taxpayers.
But the challenge was the volume went from a normal 90 to 100 million calls to 272 million calls in one year. So it's at least, give or take, three times as many. We didn't have three times as many customer service representatives.
So you're not going to be able to have callback for every call because it can only—it's the capacity of who's answering the phone. So, you'd have to do the math. Do they have enough customer service on a particular day to call back for the volume of the calls?
It is a great service, but if you have an extremely high volume of calls a particular day, unfortunately, you will get what's nicely called as a courtesy disconnect. It will say at this time our operators have a high volume of calls, please call back later. Even though they do have that callback, it may not be able to apply if there's a high volume.
Amato: To that, I'd say, what's courteous about a disconnect?
Collins: Unfortunately, there's a lot of jokes with respect to the phone. The problem is, it really isn't funny. When you are a taxpayer or practitioner trying to get answers, trying to resolve issues, and trying to be compliant with the tax law, it is so frustrating when you get that polite high volume of calls, please call back later, especially if you get it repeatedly throughout the day.
Amato: We've talked probably about some of these issues, but one thing I wanted to ask you, what are the top issues or reasons that taxpayers or practitioners are reaching out to your office?
Collins: Yeah. So if it's on an individual basis, so a taxpayer or business that are reaching out, unfortunately, the top five issues we have currently are all process-related. They didn't get their original refunds, they didn't get an amended return, they didn't get their proper credits.
Again, they're all process generated, which has really been different for TAS because, historically, TAS has been involved in more technical issues. For example, an innocent-spouse discussion, or an earned income tax credit examination. We might get involved with establishing that someone was a qualified child.
There were different types of issues. Due to the challenges taxpayers are facing, processing is the No. 1 issue impacting taxpayers across the United States.
Amato: Is there anything different on the practitioner front, or are they having the same process-related issues?
Collins: Well, unfortunately, they are having the same challenges with their clients as taxpayers across the country. I think prior to becoming the NTA, I spent 20 years on the outside representing taxpayers, and I do understand the challenges practitioners have.
I've spoken quite frequently when I'm out in public about been in their shoes. I think the challenge people are having, it's one thing when it's been a little bit of a delay, but here for the last two, three years, the delays have been three to 12 months, which again, we all know is unacceptable.
But as a client, you look at your accountant or your return preparer or your enrolled agent and say, "What's wrong with you? What did you do wrong? Don't you know people, why can't you pick up the phone? Don't you have contacts?"
So, unfortunately, I think the accounting industry, those who are preparing those returns, they're getting it from both sides. They can't get the IRS to move, and their clients are looking at them as if they're a failure. So, unfortunately, they've been put in a bad spot.
Amato: Regarding practitioners, is there any specific advice you'd give to them to make filing season go more smoothly this year?
Collins: Yeah. I think it's the same advice we've been giving in previous years. So I very much appreciate those who filed electronically. That is a huge advantage. As long as we don't have paper, we don't need to have that human intervention.
Number one, please file electronically for taxpayers. Number two, for your clients that have a bank information, include the direct deposit. That will really expedite not only the receipt, but again, it eliminates a lot of that human intervention that's necessary.
The third one, check it two, three, four times because it's those small minor errors that really slow up the processing and delays the refund. Again, it sounds really simple, and I know a lot of the practitioners do this on a regular basis, but it's sort of the mantra that we always repeat, which is file electronically, direct deposit, and check for errors. Again, thanks for everyone who's doing it, but it really is important so that we can all get through a successful filing season.
Amato: This has been an enlightening conversation for me and I think for our listeners. Anything that you would like to add in closing.
Collins: I have been pushing a lot of things on the technology front because I truly believe that if the IRS can get there, it's going to improve the lives of taxpayers and practitioners. So, I highly encourage the IRS as they're developing that plan.
In my opinion, I think it's going to be a living plan. It's going to start in February, but as time goes by, I think it's going to be updated based on changes and developments. But really modernization, it is so necessary and has been so painful for people for so long. I'm stating the obvious, but with the additional funds, I'm actually now optimistic, and I can see light at the end of the tunnel that there will be good changes.
Amato: Erin Collins, thank you very much.
Collins: Thanks, Neil.