Despite getting billions of dollars in extra funding to help meet its pledge to provide taxpayers with “top-quality service,” the IRS is failing to measure up to expectations in a number of areas, including taxpayer identity theft and amended tax return processing, a watchdog says.
“Overall, the magnitude of successes exceeded the areas of weakness in 2023,” Ms. Collins wrote in the report’s preface.
The watchdog gave the IRS plenty of bad marks, however, including for things like “unconscionable” delays in providing support to victims of tax-related identity theft or ongoing processing delays that “burden and frustrate” taxpayers.
“The year 2023 was one of extraordinary transition for the IRS and therefore for taxpayers,” Ms. Collins wrote.
She added that the “despair” of the past three years since the outbreak of the pandemic (when the IRS shut its offices and stopped processing paper-filed tax returns and correspondence) have given way to “cautious optimism” as the IRS managed to make some improvements.
The two most important IRS improvements in 2023 were answering a much higher percentage of taxpayer telephone calls and eliminating the backlog of paper-filed 1040 tax forms.
Processing Challenges and Funding Boost
The Inflation Reduction Act that President Joe Biden signed into law in 2022 initially included around $80 billion to expand the IRS’ budget over ten years.This drew the ire of Republicans, who argued that much of that money would go to hiring an “army” of tax enforcers who would reach for low-hanging fruit and target ordinary Americans rather than wealthier, more financially sophisticated taxpayers who are trickier to audit.
The watchdog acknowledged in the report that some of the additional funding—specifically the part allocated to the IRS enforcement arm—has been “controversial.”
Regardless, despite receiving a substantial funding boost, the IRS continues to face hurdles in its processing capabilities, the watchdog said in the report, which highlights significant delays in processing amended tax returns.
Even though the IRS managed to eliminate the backlog of paper-filed 1040 forms, backlogs in amended individual and business tax returns, along with correspondence, persist.
In October 2023, the backlog of unprocessed amended returns surged to 1.9 million, four times the level in 2019. Correspondence cases also more than doubled, reaching 4.3 million.
‘Extraordinary’ Delays in Identity Theft Cases
The watchdog report also reveals “extraordinary” delays in the IRS’s Identity Theft Victims Assistance (IDTVA) unit in resolving identity theft cases.As of the end of fiscal year 2023, nearly half a million taxpayers were waiting for an average of almost 19 months for the agency to address their identity theft issues. The delays are particularly concerning for low-income taxpayers, including those receiving Earned Income Tax Credit (EITC) benefits, who heavily rely on tax refunds for living expenses.
The report deems these delays “unconscionable” and urges the IRS to prioritize quicker resolutions, especially for cases affecting vulnerable groups with adjusted gross incomes at or below 250 percent of the federal poverty level.
Telephone Assistance Challenges
The watchdog report acknowledges overall improvements in the IRS’s telephone assistance, with the agency in 2023 managing to achieve an 85 percent level of service (LOS) on its accounts management lines during the filing season.However, the watchdog notes that the level of service measure is “highly technical” and, in fact, excludes the majority of calls the IRS receives from the LOS calculation.
“During the same period that the IRS achieved an LOS of 85 percent, IRS employees answered only 35 percent of all calls received,” the Taxpayer Advocate Service said in a statement. “For the full fiscal year, IRS employees answered 29 percent of all calls received.”
Not only that but there are significant differences in the level of service across different telephone lines that the IRS maintains, with the overall 85 percent level of service masking shortcomings in some specific areas.
Addressing Gaps
The watchdog recommended that the IRS prioritize improving online accounts for taxpayers and professionals, and that it should aim for functionality similar to private financial institutions.Of all the steps the IRS can take to improve the taxpayer experience, the report says that creating robust online accounts has the potential to be the “most transformative.” The two biggest obstacles are the need for “significant” improvements to online accounts so that taxpayers will see the benefit of using them, and the IRS must do a better job of promoting the accounts.
The watchdog also recommended that the IRS extend first-time penalty abatement for certain groups of filers, promote universal e-filing while improving the filing experience for paper filers, and ensure comprehensive training of IRS employees—especially customer-facing ones.
IRS Commissioner Daniel Werfel said in a statement that the watchdog “raises a number of very important areas that we are looking at to make improvements” thanks to the agency’s funding boost.
In fact, “many of these issues identified in her report ultimately depend on adequate IRS resources,” Mr. Werfel added, reiterating his oft-repeated call for more money.
Meanwhile, the Treasury Inspector General for Tax Administration (TIGTA) recently revealed that the IRS managed to rake in a record $4.9 trillion in taxes from Americans in the last fiscal year.
And the squeeze on taxpayer wallets seems set to get bigger as the IRS announced over the summer that it’s launching a “sweeping, historic” tax enforcement initiative using artificial intelligence and other cutting-edge tech to ensure the tax man gets his cut.
According to IRS estimates, taxpayers in America pay around 85 percent of the total taxes they owe.
