Congress has increased the IRS budget by more than $2 billion in the past year, yet the federal tax agency still has a backlog of more than 24 million unprocessed taxpayer returns, and Sen. Ron Johnson (R-Wis.) wants to know why.
Johnson told IRS Commissioner Charles Rettig in an Aug. 1 letter that he continues “to receive hundreds of complaints from Wisconsinites waiting for their 2021 returns and now are still waiting on their 2022 returns. My constituents’ frustration is confirmed by watchdog and press reports that the IRS continues to struggle in processing returns in a timely and efficient manner.”
The Wisconsin senator wrote that one year ago, the IRS backlog totaled nearly 16 million unprocessed tax returns from the 2020 to 2021 tax season.
Then, Johnson said, citing the latest report of National Taxpayer Advocate Erin Collins, “as of May 27, 2022, the IRS had a paper backlog of 10.5 million individual returns and 7.4 million business returns. Additionally, the IRS still needed to classify 3.4 million returns as individual or business returns.”
The numbers for the current year represent an 8.8 million increase in the number of unprocessed returns. A spokesman for the IRS couldn’t be reached by press time for comment.
In her report to Congress, Collins also observed that the IRS does an efficient job in processing error-free electronically filed returns, typically getting refunds back to filers within six weeks. The backlog is a result of the tax agency’s continuing inability to move millions of returns that aren’t so easily processed.
“When the returns included direct deposit information, taxpayers received refunds promptly. However, for millions of taxpayers who had inconsistencies or errors in their returns or who filed paper returns, the 2022 filing season was not much better than last year, and these taxpayers will be waiting for refunds for six months or longer,” Collins told Congress in her review of the 2022 filing season.
“At the end of the 2022 filing season, the IRS and taxpayers still faced long delays in processing paper original returns, electronic returns with inconsistencies, and electronic- and paper-filed amended returns, as well as the backlog of correspondence the IRS still needed to address from 2021 plus the 2022 correspondence. The high level of backlog and the corresponding delays have strained the IRS, its employees, and most importantly, taxpayers,” Collins wrote.
Johnson cited a recent Politico news story reporting that Collins’s report “contradicts the Biden administration’s repeated claims that it is catching up on the filings.”
The IRS backlog in excess of 21 million unprocessed returns comes despite Congress appropriating more than $2 billion in additional funding, which Rettig said last year would enable the tax agency to catch up.
“Congress has already appropriated billions in additional funding over the last 18 months. In March 2021, the American Rescue Plan (ARPA) provided the IRS $1.5 billion in additional funding. After that, the Fiscal Year 2022 (FY22) omnibus bill further increased the IRS’s budget by an additional $675 million,” Johnson wrote.
Johnson also pointed out that Collins, in her recent report, criticized the IRS for failing to take advantage of the added funding to make much-needed improvements that could significantly speed up processing.
“‘Had the IRS quickly used some of the $1.5 billion of additional funds provided by [ARPA], which was enacted 15 months ago, to hire and train additional employees, it could have worked through the backlog, answered more taxpayer telephone calls, and otherwise improved taxpayer service,'” Johnson wrote, quoting Collins from her report.
He continued: “Collins further elaborated, ‘Had the IRS implemented 2-D barcoding, optical character recognition or similar technology in time for the 2022 filing season, it could have reduced the need for employees to engage in the highly manual task of transcribing paper tax returns.’
“All of these missed opportunities reported by Collins occurred despite an increase in funding.”
Even so, Johnson told Rettig: “The IRS does not hesitate to penalize and fine taxpayers for late filings and payments, yet it does not hold itself accountable when it does not process taxpayers’ returns in a timely manner. This is not acceptable to Wisconsinites and all taxpayers.”
Johnson’s letter comes as the Senate is poised to vote on the Inflation Reduction Act, the wholly unexpected compromise announced a week ago between Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.).
That measure includes, among much else, an additional $80 billion in funding for the IRS and the authority to nearly double its workforce, with most of the funding and added staff to be devoted to tax enforcement rather than processing annual returns and getting refunds out.
In addition, a recent report by the Treasury Inspector General for Tax Administration said that the IRS had improperly destroyed as many as 30 million paper tax returns in March 2021. The result was that millions of taxpayers had to file duplicate copies of return information that had been destroyed by the government.