In January, the National Taxpayer Advocate Service released its 2021 annual report to Congress, highlighting the many difficulties and challenges faced by the IRS last year. The Taxpayer Advocate Service referred to 2021 as “the most challenging year taxpayers and tax professionals have ever experienced,” with tens of millions of taxpayers experiencing delays in the processing of their returns. The TAS points out that the imbalance between the IRS’s workload and its resources has never been greater, as the number of individual taxpayers has increased by about 19% since 2010, while the IRS workforce has shrunk by about 17% during that same time period.
Some of the IRS’s 2021 “lowlights” outlined in the report are as follows:
- Processing backlogs led to long refund delays;
- Telephone service was the worst it has ever been, due to inabilities to contact customer service representatives and long hold times;
- The IRS took months to process taxpayer responses to its notices, further delaying refunds and in some cases leading to premature collection notices;
- The IRS’s “Where’s My Refund” tool often could not provide an accurate answer.
Further, the TAS has faced its own challenges in providing timely assistance to taxpayers, due to a combination of more cases, and an inability to close cases due to limited IRS resources. As a result, the TAS has reinstated its prior policy against accepting cases where the sole issue was delay in processing of an original or amended returns. While the most serious problems encountered by taxpayers in 2021 were exacerbated by the COVID-19 pandemic, the TAS states that the pandemic did not create new challenges for the IRS as much as it highlighted longstanding challenges and areas that require attention, such as the longstanding underfunding of the IRS.
Some of the Taxpayer Advocate Service’s top legislative recommendations are as follows:
- Revamp the IRS budget structure and provide sufficient funding to improve taxpayer experience and modernize the IRS’s information technology systems;
- Amend the lookback period for allowing tax credits or refunds to include the period of any postponement of time for filing a return;
- Authorize the IRS to establish minimum competency standards for federal tax return preparers;
- Expand the Tax Court’s jurisdiction to hear refund cases and assessable penalties;
- Restructure the Earned Income Tax Credit (EITC) to make it simpler for taxpayers and reduce improper payments;
- Expand the protection of taxpayer rights by strengthening the Low Income Taxpayer Clinic (LITC) program;
- Clarify that supervisory approval is required before proposing penalties; and
- Require that math error notices describe the reason(s) for the adjustment with specificity, inform taxpayers that they may request abatement within 60 days, and be mailed or by certified or registered mail.
As the IRS begins accepting this year’s returns, it is still working through millions of filed returns from last year. As a result, the IRS is urging taxpayers to file their 2021 tax returns online and as soon as possible to avoid delays in processing and receiving refunds. Currently, the IRS anticipates that most taxpayers who file electronically, choose direct deposit, and file accurate returns will receive their refund within 21 days. In any event, it is important that taxpayers understand the current issues faced by the IRS and exercise patience this tax season.
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