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GAO Report Details Workload Problems at IRS in 2021, As Agency Makes Some Progress on Catching Up

Ruth Singleton
Published Date:
Apr 12, 2022

The Government Accountability Office (GAO) issued a report to Congress this week,  based on the 2021 tax filing season, saying that the IRS needs to address persistent challenges that led to a backlog of millions of unprocessed returns. IRS Commissioner Chuck Rettig recently testified that the IRS plans to get caught up by the end of the year, Accounting Today reported

In its report, the GAO said that the IRS “experienced multiple challenges during the 2021 filing season as it struggled to respond to an unprecedented workload that included delivering COVID-19 relief.” The GAO, added, “IRS began the filing season with a backlog of 8 million individual and business returns from the prior year that it processed alongside incoming returns. IRS reduced the backlog of prior year returns, but as of late December 2021, had about 10.5 million returns to process from 2021. Further, IRS suspended and reviewed 35 million returns with errors primarily due to new or modified tax credits. As a result, millions of taxpayers experienced long delays in receiving refunds. GAO found that some categories of errors occur each year; however, IRS does not assess the underlying causes of taxpayer errors on returns. Doing so could help reduce future errors, refund delays, and strains on IRS resources.” 

The GAO reported that the IRS had to pay billions of dollars in interest as a result of the delays, and that there were many problems with customer service. 

“IRS has paid nearly $14 billion in refund interest in the last 7 fiscal years, with $3.3 billion paid in fiscal year 2021,” the report said. “Using IRS data, GAO identified some characteristics of refund interest payments, such as amended returns. However, IRS does not identify, monitor, and mitigate issues contributing to refund interest payments. Accordingly, IRS is missing an opportunity to reduce costs.” 

With regard to customer service problems, the report said that the IRS “answered more phone calls than in prior years, but taxpayers had a difficult time reaching IRS due to high call volumes. IRS urged taxpayers to access its ‘Where’s My Refund’ online tool to get refund status information; yet this tool provides limited information on refund status and delays. IRS does not have plans to modernize ‘Where’s My Refund,’ although this could help IRS better serve taxpayers, lower call volume, and reduce costs. IRS’s correspondence inventory was 5.9 million by the end of the filing season, and grew to more than 8 million by the start of 2022. IRS does not have a plan or estimates for reducing this backlog; doing so could help reduce demands on IRS. Finally, in-person service has significantly declined since 2015 and IRS has not fully considered alternatives for its current in-person service model. IRS’s plans to improve the taxpayer experience—such as by expanding virtual services—may further contribute to the decline in in-person visits.” 

Challenges with Customer service
In its conclusion the GAO Report said, “While IRS is taking some steps to avoid processing delays during the 2022 filing season, the long delays and resulting backlog of work highlight the need for IRS to reduce manually intensive work, where possible, to avoid ongoing workload imbalances and refund delays. IRS has not identified and analyzed the underlying causes for taxpayer errors on returns that regularly occur each year. Doing so could help taxpayers and preparers prevent these errors before filing returns, and reduce processing and refund delays.” 

The GAO made six recommendations to the IRS:

"The Commissioner of Internal Revenue should develop a process to identify and analyze the underlying causes for taxpayer errors on returns and address them, as appropriate and feasible, with input from internal and external stakeholders. (Recommendation 1)  

The Commissioner of Internal Revenue should direct responsible IRS business units to regularly identify, monitor, and report on the primary reasons for individual and business-related refund interest payments and associated dollar amounts, and report this information, as appropriate, to IRS leadership, Treasury, and Congress. (Recommendation 2)  

The Commissioner of Internal Revenue should take steps to reduce the amount of refund interest paid for those cases within IRS’s control. (Recommendation 3)  

The Commissioner of Internal Revenue should work with Treasury to develop and implement a modernization plan for 'Where’s My Refund' that fully addresses taxpayer needs and requirements. (Recommendation 4)  

The Commissioner of Internal Revenue should estimate time frames for resolving IRS’s correspondence backlog, monitor and update these estimates periodically, and communicate this information to taxpayers and stakeholders. (Recommendation 5)  

The Commissioner of Internal Revenue and appropriate IRS stakeholders should develop and communicate a plan for providing in-person taxpayer services relative to IRS’s plans for expanded virtual customer service options, and costs and benefits. (Recommendation 6)"

According to Accounting Today, Rettig testified last week during a Senate Finance Committee hearing about the IRS’s plans to get caught up by the end of the year. “With respect to our current 2022 filing season, we are off to a healthy start in terms of tax processing and the operation of our IT systems,” he said. “Through April 1, we have processed more than 89 million returns and issued more than 63 million refunds totaling more than $204 billion. However, there are essentially two distinct filing seasons. Taxpayers who choose to electronically file and who request a direct deposit are receiving their refunds within approximately 21 days. Many individuals have received those refunds within three or four days of the submission of their electronic file. With respect to taxpayers who submit paper returns, our processing is first in, first out. We are processing approximately 2.7 million returns still that were received in calendar year ’21, so taxpayers who during this filing season choose to file paper returns end up at the end of that particular stack.” 

Accounting Today explained that the pandemic relief passed by Congress and the many attendant tax law changes resulted in many more phone calls to the IRS in recent years, and the IRS fell behind in responding to calls. “At one point, we were receiving phone calls at the rate of 1,500 per second, and that built up such an inventory and a backlog that we’ve never recovered from that,” said Rettig. “We need to crush our paper inventories. We need to crush our return backlog because the folks who answer the phones also process paper. When we can get through the paper, we can get all those folks full time back onto the phones and handle that. We’re committed to getting into that position by the end of calendar year 2022.” 

As a result, the IRS has set up “surge teams,” moving employees from other functions to help with processing tax returns. Rettig has also announced plans to hire 10,000 more employees over the next year to staff up the agency.  The IRS is also benefiting from its new direct-hiring authority to recruit new employees more quickly, including at a job fair last week at its processing center in Ogden, Utah. 

In addition, the IRS is adding more technology and hopes to be able to get funding  to implement scanning and barcoding technology to read in information from paper returns, as was called for in a recent blog post by National Taxpayer Advocate Erin Collins, instead of forcing employees to transcribe the information manually  

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