The IRS improved its performance during this year's tax season, National Taxpayer Advocate Erin Collins said in her midyear report to Congress.
“In submitting this report, I’m finally able to deliver some good news. The taxpayer experience vastly improved during the 2023 filing season,” Collins wrote.
“The IRS caught up in processing paper-filed original Forms 1040 for individuals and various business returns; refunds were generally issued quickly; and taxpayers calling the IRS were much more likely to get through—and with substantially shorter wait times,” the report read. “The IRS reduced its backlog of unprocessed paper returns by 80 percent,” from 13.3 million at the end of the 2022 filing season to 2.6 million at the close of the 2023 filing season.
Despite these improvements, Collins noted that the IRS is still behind in processing amended tax returns and taxpayer correspondence. The agency reduced its backlog of unprocessed amended paper returns, taxpayer correspondence, and Accounts Management (AM) cases by only 6 percent, and is still behind in processing amended tax returns and taxpayer correspondence, she found.
Collins found the IRS to be much more effective in answering taxpayer calls this year, but at the cost of prioritizing the phones over other IRS operations. That resulted in greater delays in the processing of paper correspondence.
For individual amended returns (Forms 1040-X), the IRS’s processing time was about seven months as of the end of the 2023 filing season. A large portion of the delay in processing business amended returns is attributable to Employee Retention Credit (ERC) claims, for which the report noted that the IRS has received a large number of fraudulent claims.
“The influx of fraudulent claims has put the IRS between a rock and a hard place,” Collins wrote. “If the IRS pays out claims quickly without taking the time to review them individually, it will be making some payments to individuals potentially engaged in fraud. If it takes the time to review claims individually, legitimate businesses who need the funds Congress authorized to help them stay afloat may not receive them in time.”
The report also said that the IRS “made considerable progress in its telephone service this filing season. It answered more calls, answered a substantially higher percentage of calls, and significantly reduced wait times,” reaching the Treasury Department’s goal of an 85 percent “Level of Service” (LOS) on the AM telephone lines. However, IRS employees only answered 35 percent of all calls received.
The report explained how IRS employees could answer only 35 percent of incoming calls and still achieve an 85 percent LOS. The reason is that the LOS measure excludes 73 percent of the taxpayer calls the IRS received. The computation includes only calls directed to its Accounts Management (AM) telephone lines, so it excludes 7.2 million calls directed to compliance and other telephone lines). It also excludes 8.5 million calls in which taxpayers hung up before being placed into a calling queue, and it excludes about 6.9 million calls that were routed to receive automated responses. Thus, the LOS measure reflects that telephone assistors answered 7.7 million out of 9.3 million taxpayer calls routed to them, rather than 11 million out of the 31.9 million calls the IRS received.
Of the roughly $79 billion in funding that the IRS received under the Inflation Reduction Act, only $3.2 billion was allocated for taxpayer services, and only $4.8 billion was allocated for business systems modernization, the report said, adding that the Fiscal Responsibility Act of 2023 and a related side agreement reduced the IRA funding level to about $58 billion. The report said that the Taxpayer Advocate Service would continue to advocate for adequate funding for taxpayer services, business systems modernization and the operational overhead that supports those programs.
The report urged the IRS to prioritize information technology (IT) upgrades that will improve the taxpayer experience. “[T]o achieve and sustain transformational improvement over the longer term, the IRS must focus like a laser beam on IT,” Collins wrote, listing a number of improvements that included giving taxpayers online accounts that are comparable to accounts provided by banks and other financial institutions, making it possible for all taxpayers to e-file their tax returns, limiting the number of rejected electronic tax returns, providing faster relief for victims of identity theft, and making it possible for taxpayers to receive and submit responses to information requests electronically in all interactions with the agency.
“[W]ith adequate funding, leadership prioritization, and appropriate oversight from Congress, I believe the IRS will make considerable progress in the next three to five years in helping taxpayers comply with their tax obligations as painlessly as possible,” she wrote.