The Internal Revenue Service has warned repeatedly that this year’s tax season, which kicked off on Monday, will be particularly challenging and frustrating. As concerns mount about the difficulties the agency and the public will face, a bipartisan group of more than 200 House and Senate members this week called on the IRS to cut taxpayers some slack. And some Democrats are reportedly considering providing the agency with extra funding to improve service as part of the annual spending bill now being negotiated.
The IRS backlog: At the end of 2021, the IRS had 6 million unprocessed individual returns and some 2.3 million amended individual tax returns. The agency also has more than 1 million unprocessed Form 941 employer quarterly tax returns, many of which must be processed before it can get to nearly 500,000 amended Form 941 returns. As of mid-December, the agency also had some 4.75 million pieces of paper correspondence that had not been processed.
A funding boost in the 2022 spending bill? Democrats are looking to provide the IRS with an additional $80 billion over 10 years as part of a plan to improve the agency’s service and beef up collection of unpaid taxes. But that proposal is part of the stalled Build Back Better package. “That leaves delayed fiscal 2022 appropriations as likely the fastest and surest way to infuse the department with more cash as lawmakers work across the aisle toward an omnibus spending bill,” Roll Call’s Laura Weiss reports.
Sen. Chris Van Hollen (D-MD), who heads the Senate Appropriations subcommittee responsible for the IRS budget, told Roll Call that his panel is considering increasing the $13.6 billion in funding Democrats had proposed, which represented a 14% increase over 2021 funding. “I would like to see taxpayer services get a bigger boost because of exactly the kind of backlog we’re in,” Van Hollen said.
Both National Taxpayer Advocate Erin M. Collins and Center for Taxpayer Rights Executive Director Nina Olson, who served as taxpayer advocate for two decades, both recommend increasing the IRS budget as a key part of reforms to improve the agency — with increased oversight and clear planning also necessary. “I don’t want them to be finally given some money and then blow it, you know, because they don’t have a good plan,” Olson told Roll Call. “Because then they will never get the money again.”
But Weiss reports that Republicans may not agree to increased funding, noting that four key GOP lawmakers wrote to IRS Commissioner Chuck Rettig earlier this month asking what the agency what doing to address a processing backlog and customer service failures. “This crisis is not due to a lack of funding,” the Republicans wrote, asking why more than $1.4 billion in remaining supplemental funding provided as part of the federal pandemic response hadn’t been spent to address the problems.
Some short-term relief? Whatever funding boost lawmakers might provide probably won’t arrive in time to help resolve the issues the agency faces this tax season. But hundreds of lawmakers from both parties still say the agency can still provide taxpayers with some immediate relief by suspending automated collections and excusing some tax penalties, among other steps.
“Recognizing the extraordinary challenges of the COVID-19 pandemic, in addition to the IRS operating with antiquated technology and a constrained budget, we find the current situation alarming,” the group of more than 200 lawmakers, led by Sens. Bob Menendez (D-NJ) and Bill Cassidy (R-LA) along with Rep. Linda Sanchez (D-CA), said in a Wednesday letter to Treasury Secretary Janet Yellen.
The lawmakers added that they “stand ready to support the IRS and look forward to hearing how we can help you address any obstacles facing the agency.”
An IRS response: In an announcement Thursday, the overwhelmed agency said it was suspending certain automated notices as part of a larger effort to minimize taxpayer aggravation.
“The IRS entered this historic pandemic without the funding that it needs to serve the American people,” the announcement said. “As part of our ongoing efforts during the pandemic, and within these limited resources, the IRS has aggressively pursued every available option to better serve taxpayers this filing season. This includes, where appropriate and possible, requiring overtime by IRS employees, the redeployment of employees between functions, transfer of inventories among posts of duty, deployment of experienced surge teams – all aimed at returning our processing and correspondence inventories to a healthy level and improving our overall services to taxpayers and tax professionals.”
The halted notices would normally be sent in cases where the agency has credited taxpayers for payments but have no record of an income tax return having been filed. “In many situations, the tax return may be part of our current paper tax inventory and simply hasn't been processed,” the agency said. “Stopping these letters — which could have otherwise been sent to thousands of taxpayers — will help avoid confusion.”
The agency added, though, that it is required to send many notices within a certain time for them to be legally valid, unless Congress says otherwise.
Taxpayer and accountant groups said the IRS actions were welcome but called on the agency to do more. “There is a sense of despair right now,” Melanie Lauridsen, senior manager for tax policy and advocacy with the American Institute of Certified Public Accountants, told The Washington Post. “People are getting these notices and they can’t even get in touch with the IRS. So what do they do?”