The IRS Is in Crisis, Watchdog Report Warns

The IRS Is in Crisis, Watchdog Report Warns

Last year was the most challenging ever for taxpayers and tax professionals, the National Taxpayer Advocate says in an annual report to Congress issued Wednesday: “There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous.”

The report warns that the “IRS is in crisis” and that the “imbalance between the IRS’s workload and its resources has never been greater.” It reiterates a call for Congress to provide more funding for the agency. Since fiscal year 2010, it says, the IRS budget has been cut by about 20% in inflation-adjusted terms, and its workforce has shrunk by 17%, while its workload as measured by the number of individual returns has grown by 19%. “Largely as a result of these budget reductions, the IRS cannot provide top quality service or enforce the law with fairness to all,” the report says. “Additional funding for the IRS would not only improve taxpayer service but would almost surely increase revenue collection.”

The resource constraints combined with the added challenges presented by the pandemic, including several relief programs Congress tasked the IRS with administering, all resulted in a terrible year for taxpayers. Tens of millions of taxpayers saw extraordinary delays in the processing of their returns and refunds last year, the report says — holdups that caused financial hardship for some filers and “extreme frustration” for many others. Those delays were accompanied by difficulty reaching the IRS and having correspondence processed. Telephone service was the worst it has ever been, the report says, and taxpayers had problems getting information on the agency’s “Where’s My Refund?” tool and getting help from the Taxpayer Advocate’s office. The report says Americans visited the Where’s My Refund tool more than 632 million times last year, up from about 370 million times in 2019.

The report credits the agency and its leadership for performing well given the circumstances. It says the IRS last year issued 130 million tax refunds totaling $365 billion, sent 478 million stimulus payments totaling $812 billion and delivered some 36 million families more than $93 billion in monthly child tax credit payments.

Yet as challenging as last year was, Taxpayer Advocate Erin M. Collins warns that this year could be just as bad or worse for some taxpayers, given that many filers will have to reconcile the monthly child tax credit payments they received in 2021 and some will also be claiming credit for stimulus payments they did not receive — all while the IRS is already carrying over millions of unprocessed returns and millions more pieces of correspondence.

“While my report focuses primarily on the problems of 2021, I am deeply concerned about the upcoming filing season”, Collins said in a statement, adding that “paper is the IRS’s kryptonite, and the agency is still buried in it.”

Read the Taxpayer Advocate’s report here or see more about it here.