According to a new report by the Taxpayer Advocate Service, millions of taxpayers were left in limbo as the Internal Revenue Service delayed payouts of refunds for months due to an unprecedented backlog of paper returns.
The report found that taxpayers who filed paper tax returns waited an average of six months or more because of delays while processing returns in 2022. Many taxpayers and professionals were left in the dark as only 13% of calls to the toll-free IRS hotline were connected to actual IRS employees.
“The main focus of this year’s report is the elephant in the room – the continuing customer service challenges taxpayers are experiencing and the negative impact of the filing season backlog,” National Taxpayer Advocate Erin M. Collins wrote in the report. “…The bad news is that taxpayers and tax professionals experienced more misery in 2022.”
Collins wrote that the IRS failed to process tax returns and pay out refunds promptly for the third year. Most Americans who filed over the internet faced no delays. However, 13 million individuals filed paper returns, and millions of e-filed returns were still flagged and suspended by IRS filters for further manual review by employees.
Compared to other years, in 2022, the IRS took an unprecedented average of 193 days, or six months, to process tax returns. Before the pandemic in 2019, the IRS took an average of 89 days.
Collins wrote that there might be some hope for relief in 2023 compared to the past two years. The IRS began 2022 with 4.7 million backlogged individual paper returns from 2021. This year, the IRS has significantly reduced its backlogged individual returns to 400,000.
To achieve this result, the IRS assigned more customer service and enforcement employees to deal with the backlog from the previous year instead of managing the returns from 2022, according to Collins. This decision contributed to poor customer service.
In 2022, Collins wrote that only one in every eight calls was connected to an IRS telephone assister, with an average hold time of 29 minutes. Tax professionals are at their limits.
“Tax professionals are key to a successful tax administration,” Collins wrote. “The challenges of the past three filing seasons have pushed tax professionals to their limits, raising client doubts in their abilities and creating a loss of trust in the system – often through no fault of the tax professional.”
Collins recommended the IRS use its additional funding from the Inflation Reduction Act, passed by Congress in August, to expand its human resources department to expedite the hiring process for new IRS employees. Collins also recommends the IRS should embrace technological solutions such as Document Uploader Tools to create a robust and accessible online filing process to relieve the backlog.
Mike Pelicz, director of Tax Policy at Americans for Tax Reform, told The Center Square during an interview that the IRS refund failure resulted from a cultural problem in the institution and a lack of accountability.
Pelicz cited a report by the U.S. Treasury inspector general in May 2022 that showed the IRS had destroyed more than 30 million taxpayer documents rather than managing the backlog in 2021.
“We still have no answer from the IRS other than they’re looking into it,” Pelicz said. “Again, these are things that are not just a question of resources. This is a cultural and complete lack of accountability.”
Pelicz said he was encouraged by Republicans’ pledge in the House of Representatives to increase oversight of the IRS and repeal funding for more enforcement.
“I think the biggest change you’re going to see now with House Republicans in power is oversight,” Pelicz said. “We’ve seen again the first vote on the floor was dealing with the IRS, and you can bet it’s a top priority for oversight.”
The IRS, when asked by The Center Square whether it would be able to reduce processing delays before the spring tax season, said the organization was poised to deliver significantly improved service since the pandemic.
“With the additional resources, the IRS is focused on delivering significantly more service in 2023 than it has been able to in prior years,” a spokesperson for the IRS said. “As a direct result of IRA, the IRS has made major strides in hiring thousands of additional customer service representatives for our phone lines. These assisters will not only help the taxpayer-focused lines but also help tax professionals using the Practitioner Priority Line.”