IRS distributed over $642B in 2022, despite backlogs and refund delays

The Internal Revenue Service reported this week it received more than $4.9 trillion in tax revenue in fiscal year 2022, and distributed $642 billion in federal tax refunds and other outlays, but a separate report Friday found continuing problems with taxpayer service, tax refund delays and backlogs of unprocessed returns that the IRS plans to address for next filing season.

The IRS first released its financial report Thursday for the fiscal year ending Sept. 30, 2022. It indicated that the IRS maintained a clean, unmodified financial statement audit opinion for the 23rd consecutive year. 

“Based upon the results of our internal control evaluations, I can provide reasonable assurance that the performance and financial information in this report is complete and accurate,” wrote former IRS Commissioner Charles Rettig in an introduction to the report. “We continue to strengthen management controls and make progress toward remediating the significant deficiencies in internal control over financial reporting in meeting all U.S. financial systems compliance and conformance objectives.”

He noted that the recently passed Inflation Reduction Act of 2022 will provide nearly $80 billion to the IRS through fiscal year 2031 for increased enforcement, investments in information technology modernization and improvements to taxpayer services.

“I am proud that the stewardship of our operations is a clear demonstration of the commitment we share toward our mission of leading the IRS’s financial management with integrity and accountability through expert planning and sound financial advice to help serve taxpayers and tax administration,” said IRS CFO Teresa Hunter in a statement Thursday.

The extra $80 billion in funding should help the IRS improve its taxpayer service, which has been lagging after a series of budget cuts over the years combined with increased strains from changes in tax laws and requirements for distributing multiple rounds of Economic Impact Payments and monthly payments of enhanced child tax credits to taxpayers during the pandemic.

A separate report released Friday by the Government Accountability Office found that backlogs and ongoing hiring challenges at the IRS led to poor customer service and tax refund delays. The report noted that the IRS has struggled with a work backlog for three years. During the 2022 filing season, the agency focused on reducing its correspondence backlog, but that left most phone calls from taxpayers unanswered. At the end of last year, the IRS had a backlog of approximately 10.5 million paper returns and returns that had been stopped for errors. The IRS addressed its backlog of 2021 paper returns, but as of late September 2022, the IRS still had about 12.4 million returns to process, resulting in tax refund delays for millions of taxpayers. 

From January to September 2022, the IRS reduced its prior-year backlog of taxpayer correspondence from about 5 million to about 400,000 pieces. The IRS used a combination of strategies to work through this inventory of unanswered correspondence, including reassigning staff from answering phones to processing correspondence. However, partly as a result of those efforts, the IRS answered less than one in five calls during the filing season. 

The IRS did manage to hire the staff it needed with the help of a short-term authority that speeds the hiring process, but most of those staff members started working after the filing season ended.

As of September, the IRS met its hiring goals for fiscal year 2022 thanks to a combination of direct and traditional hiring. The IRS’s direct hire authority enables it to make on-the-spot job offers to applicants. However, this authority did not begin until a month after the filing season began. As a result, about 95% of direct hires did not start working until after the 2022 filing season ended. IRS officials said their recent hiring efforts will help prepare the agency for a strong 2023 filing season, according to the report.

“Taxpayer service remains the most significant IRS priority, and we have implemented many new, innovative strategies to improve our overall level of service and processing of our unprecedented current and projected inventories,” wrote Melanie Krause, acting deputy commissioner for services and enforcement at the IRS, in response to the GAO report. The pandemic presented the IRS with a confluence of novel and critical demands at a time when we lacked the stable, long-term funding needed to appropriately serve the American people. Given these significant challenges, although we may not have always met our goals for timeliness or level of service available to meet demand, our employees have worked extremely hard to respond as best we could to a never-ending string of compounding challenges. With the recent infusion of long-term funding provided by the Inflation Reduction Act of 2022, we are diligently working to ensure our level of service returns to and exceeds pre-pandemic levels in the upcoming 2023 filing season.”