Excessive delays in processing tax returns and tax refunds ranks as the No. 1 most serious problem facing taxpayers, according to National Taxpayer Advocate Erin Collins’ annual report to Congress released today. It was tough last year, and it looks like it’s going to be tough this year too.
The Internal Revenue Service announced this week that the 2022 tax season filing start date—when you file your 2021 tax return—is Monday, January 24th. Meanwhile, millions of people are still waiting for their 2020 tax year tax refunds. And the taxpayer advocate is warning of refund delays this tax season.
“I am deeply concerned about the upcoming filing season. Paper is the IRS’s Kryptonite, and the agency is still buried in it,” said Collins. How bad was it last year? Taxpayers faced long processing and refund delays, difficulty reaching the IRS by phone, correspondence that went unprocessed for many months, collection notices issued while taxpayer correspondence was awaiting processing, limited or no information on the Where’s My Refund? tool for delayed returns, and difficulty obtaining timely assistance from the Taxpayer Advocate Service, an independent organization within the IRS that Collins heads up. Last year, TAS got more than 66,000 congressional referrals, six times the pre-pandemic level of inquiries.
Millions of e-filed returns were held up as the IRS issued math error notices because of discrepancies related to 2020 tax year stimulus payments. The most common error (11 million returns) was around Recovery Rebate Credit claims by taxpayers who didn’t get stimulus payments. The mismatch triggers a math error notice; a taxpayer’s response go into the paper pile; and any refund is further delayed. Paper returns were taking up to eight months to process, and there were cases where amended returns took more than a year to process.
Millions of discrepancies—and math error notices—remain likely this year too, Collins warns, as taxpayers have to reconcile the third stimulus payment paid out in 2021 as well as any 2021 monthly advanced child tax credit payments on their 2021 tax returns. The child tax credit payments apply to almost everyone with kids—36 million taxpayers. To avoid tax refund delays, make sure you have IRS letters 6419 and 6475 on hand before you file. File electronically and choose direct deposit.
How bad is the backlog going into this filing season? The latest Covid operations statistics as of January 7, show that the IRS still had 6 million unprocessed 2020 individual tax year returns as of December 23, 2021. In addition, as of January 1, there were 2.3 million unprocessed amended individual tax returns, and as of January 5, there were 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X).
The IRS backlog includes about 5 million pieces of taxpayer correspondence – with some of these submissions dating back at least to April and many taxpayers still waiting for their refunds nine months later, according to the Taxpayer Advocate report.
IRS filing statistics as of December 3, 2021 showed 168 million individual income tax returns processed. Of those 77% were issued refunds. Average refunds came in at $2,815.
Tax refund delays cause real problems for people, with a disproportionate impact on low-income taxpayers. “The financial impact can range from mild inconvenience to severe financial hardship,” Collins says.
Collins says that the IRS “deserves credit for playing the hand that it was dealt.” Congress has charged the IRS with administering Covid-relief—stimulus payments, advanced child tax credits, and the $10,200 unemployment benefits tax exclusion. And the number of taxpayers the IRS serves has been going up while the IRS workforce numbers and budget have been going down. Since FY 2010, the IRS’s workforce has shrunk by 17%, while its workload – as measured by the number of individual return filings – has increased by 19%.
How can Congress help? The Taxpayer Advocate calls for Congress to beef up its funding to the IRS so it can improve the taxpayer experience and modernize its IT systems.