Tuesday, March 1, 2022

TAS Says That IRS Backlog Hits Nearly 24 Million Returns - Huh?

According to the Washington Post, nearly 24 million taxpayers are still waiting for the Internal Revenue Service to process their tax returns from last year, a number far larger than previously reported by the agency, with many refunds being held up for 10 months or more.

The inventory of unprocessed returns and related correspondence was provided by the IRS’s taxpayer advocate service to the tax-writing committees in Congress. The backlog will probably further slow service in the 2022 filing season; the Treasury Department, the IRS’s parent agency, warned in January that it expected its response to be subpar this year. 

The pileup of work that remains from last year, according to three people who spoke on the condition of anonymity because they were not approved to speak publicly, comes as the tax agency struggles to hire and train new staff to clear the logjam. In response, the IRS is considering suspending tax collections and excusing some penalty enforcement.

“For decades, Republicans have starved the IRS of funding, and now American taxpayers are paying the price,” said Rep. Richard E. Neal (D-Mass.), the chairman of the tax-focused House Ways and Means Committee, citing the statistics unearthed by The Washington Post. “The backlog of tax returns is but one symptom of the fundamental issue that has been ailing the IRS for too long: inadequate resources.”


The IRS’s productivity plummeted during the coronavirus pandemic as thousands of employees worked from home for months without access to returns, audits and other business difficulties that followed years of budget cuts. The federal stimulus measures also added to the agency’s workload, as it emphasized getting relief money to millions of Americans. Paper returns took the greatest hit, as mail piled up on trucks outside closed offices for months.


Adding to the challenges, a new report from the IRS inspector general this month found that the agency continues to suffer from severe hiring shortages, inefficient practices and old equipment. That includes mail processing woes, since its systems have “outdated dust collectors” that cause paper jams. Poor scanners, meanwhile, meant the IRS last year missed out on $56 million because of “untimely check deposits,” since the agency could not tell whether envelopes it received contained checks.


As of Jan. 28, the tally of outstanding individual and business returns requiring what the IRS calls “manual processing” an operation where an employee must take at least one action rather than relying on an automated system to move the case came to 23.7 million, the taxpayer advocate data shows.


“This entire ecosystem of pending cases gives the public a fuller picture of what the IRS is up against,” said Chad Hooper, executive director of the nonprofit Professional Managers Association, which represents hundreds of IRS managers. “And it’s a crazy number before most people have filed their taxes for this year.”


The stockpile does not include audits lingering because of pandemic slowdowns, enforcement and collection actions, appeals of audits, notices of tax liens, penalties or other business in the pipeline, Hooper said.

The IRS is taking at least 10 months to process paper returns filed for the 2020 tax year, and has caught up only to April 2021 for returns without errors, according to the most recent data on its website.

President Biden and top Democrats proposed boosting the IRS budget, arguing that the agency had been severely underfunded and understaffed for decades before the added responsibilities. But the effort has so far failed to gain enough support in Congress, while talks continue around a new spending deal to fund the government and prevent a looming shutdown.


IRS spokeswoman Jodie Reynolds referred questions on the lingering inventory to a letter Rettig sent this week to all 535 members of Congress. Rettig, an appointee of former president Donald Trump, acknowledged an “unprecedented amount of unprocessed tax returns and correspondence remaining in the IRS inventory during 2021.”


But he said the problem has been compounded by a lack of funding to hire new staff and modernize its aging computer software systems, some of which date to the 1960s.


The commissioner announced last week that he was temporarily reassigning 1,200 employees as part of a “surge team” to help. But Collins told the oversight panel of the House Ways and Means Committee this week that the staffing problems are far broader, compounded by recruiting challenges and low pay.


The agency sought to fill 5,000 positions for several campuses across the country in time for this tax season but was able to hire fewer than 200, she said. The situation is so dire that for the first time, officials are offering $500 referral bonuses to employees if a new hire stays in the job for a year.


The agency has one of the government’s oldest workforces. Its submission processing unit responsible for opening the mail lost 20 percent of its staff last year to retirements, departures and transfers to other IRS departments, officials said. The Treasury Inspector General for Tax Administration reported this past week that as of August 2021, the IRS faced a total staff shortfall in the submission processing unit of about 2,598 employees.


The watchdog said that although the IRS has several initiatives underway to help address its hiring shortages, “to date these approaches have not been successful.” It urged the agency to delay a planned closure of its processing center in Austin, part of a long-term consolidation as more business is done electronically, “until hiring and backlog shortages are addressed.”


“Just like many industries across the country, jobs are available, but people are not applying,” Reynolds, the IRS spokeswoman, said in an email. “In [our case,] applicants may not like the shifts or pay as many of these are lower graded positions that were below the $15.00 minimum hourly rate.”

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