IRS is in ‘crisis,’ facing massive backlog as new tax season starts

By Katie Lobosco, CNN

The Internal Revenue Service had more than 11 million unprocessed tax returns left over from the “most challenging year” taxpayers ever experienced and will begin the upcoming filing season already behind, according to a report from the National Taxpayer Advocate released Wednesday.

“There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous,” wrote Taxpayer Advocate Erin Collins, who heads an independent watchdog organization within the IRS.

The processing delays could be “as bad, and potentially worse” this year, she added.

The coronavirus pandemic created new challenges for the agency and brought on additional work. Congress tasked the IRS with sending out billions of dollars in economic relief benefits like the stimulus payments and monthly enhanced child tax credit payments. Those challenges exacerbated existing problems at the IRS created by longtime underfunding, the report said.

Treasury Department officials warned earlier in the week that taxpayers could experience delays this year when they file their 2021 federal tax returns. The IRS will start accepting them on Monday, January 24.

IRS ‘in crisis’

“The IRS is in crisis and needs to apply resources to its core mission — processing returns and paying the corresponding refunds,” the report said.

As of mid-December, the agency had 8.6 million unprocessed individual returns and more than 3 million business returns left over from last year. It also had nearly 5 million pieces of unanswered mail.

When taxpayers had a question, they had enormous difficulty connecting with someone at the IRS who could help them. Customer service representatives only answered 11% of the roughly 282 million telephone calls the agency received last year. The number of calls more than doubled compared with the year before.

Taxpayers attempted to use the “Where’s My Refund?” online tool about 130 million more times than the previous year to check the status of their payment. But the tool cannot always provide a helpful answer. It does not explain why a return may be approved but not sent, the reason for the delay, where the return is in the process or what needs to be done — leaving millions of taxpayers in the dark for months, according to the report.

Pandemic, longtime underfunding create challenges

The Covid-19 pandemic made it harder for the IRS to perform its services. Many of its employees were working from home at the start of the pandemic, meaning some paper returns sat in trailers for months waiting to be opened and the agency’s technology did not allow all customer service calls to be answered remotely.

The pandemic also made it harder for taxpayers to access in-person help at IRS Taxpayer Assistance Centers, many of which were shut down for months in 2020.

The IRS started last year’s filing season with a backlog of returns from the previous year, too. It took until June 2021 before the agency had processed all of the previous year’s returns.

The service problems were exacerbated by the pandemic, but they resulted from longstanding underfunding of the agency, the report said.

The agency’s baseline budget has shrunk by about 20% on an inflation-adjusted basis since 2010, and its workforce has shrunk by about 17%.

“The imbalance between the IRS’s workload and its resources has never been greater,” the report said.

Pandemic relief programs add to the IRS’ workload

Congress gave the IRS the job of delivering three rounds of economic impact payments as well as the monthly enhanced child tax credit payments — two key pandemic relief programs implemented over the past two years.

The agency issued 478 million stimulus payments, totaling $812 billion, and delivered enhanced child tax credit payments to more than 36 million households, totaling more than $93 billion.

While taking on that extra work, the IRS processed most of the returns that were filed electronically in a timely manner. The processing of paper returns was more likely to be delayed.

“One irony of the past year is that, despite its challenges, the IRS performed well under the circumstances,” the report said, adding, “The IRS’s leadership and workforce deserve considerable credit for their accomplishments.”

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