IRS still hampered by backlog and staffing shortages

The Internal Revenue Service is continuing to face staffing challenges that are holding back its efforts to process both last year’s and this year’s tax returns, according to a new report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, found that backlog inventories left over from the 2021 filing season are larger than those in the 2020 filing season. More than 16.4 million individual tax returns, transactions, and Accounts Management cases remained in inventory as of the end of calendar year 2021. 

More recently, IRS Commissioner Chuck Rettig said in a congressional hearing last month that the IRS has managed to reduce its inventory of unprocessed 2021 returns from last year to approximately 2.7 million (see story). IRS figures from April 26 cited by Sen. Chris Van Hollen, D-Maryland, during an oversight hearing Tuesday were over 2.5 million unprocessed paper tax returns from calendar year 2021 and over 8.9 million from 2022. Rettig said the number of 2021 paper returns left as of April 21 were 1.8 million and 4 million from 2022 that have yet to be processed, although he noted that since the tax season just ended a few weeks ago, they shouldn’t be considered a backlog. 

The IRS is still facing challenges with hiring enough employees to deal with the backlog and the avalanche of new tax returns. 

“The inability to timely process tax returns and address tax account work continues to have a significant impact on the associated taxpayers,” said the report. 

This year, the IRS expects to receive 160.7 million individual income tax returns. As of March 4, 2022, the IRS received 54.7 million tax returns, of which 53.2 million (97.2%) were electronically filed, and tax refunds totaling $129.2 billion have been issued by the IRS, according to TIGTA’s report. As of March 4, 2022, 1.2 million Free File returns were received, but that was a 30.3% decrease compared to the same period last year. This year, both Intuit and H&R Block are no longer part of the Free File program, which may explain the stark decline.

“However, significant staffing shortages continue to hamper the IRS’s efforts to address backlog inventories and affect the IRS’s ability to ensure that current year tax returns are processed timely,” said the report. “More than 8.4 million individual tax returns and transactions remained to be processed as of the end of calendar year 2021. In addition, more than 8 million cases remained in Accounts Management. This represents a 33% increase in the number of unprocessed tax returns and a 61% increase in the number of amended tax returns that remained to be processed.”

The IRS has been trying to hire more employees with the goal of hiring 10,000 more within a year. Now that it has been granted direct hiring authority by Congress, the IRS has been able to streamline the process and has been holding in-person and virtual job fairs in Austin, Texas, Kansas City, Missouri, and Ogden, Utah where the IRS was able to make more than 2,500 conditional offers at the conclusion of the interviews, Rettig testified to a Senate oversight committee during a budget hearing Tuesday.  

As of March 15, 2022, the IRS onboarded 521 Submission Processing employees, according to the TIGTA report, but that’s 9.5% of its hiring goal of 5,473. In addition, the IRS is continuing to experience shortfalls in hiring in the area responsible for providing taxpayer tax account assistance. As of March 17, 2022, the IRS onboarded 3,827 Accounts Management employees, but that’s 76.5% of its hiring goal of 5,000 for the 2022 filing season. Rettig told Congress that the agency now has 2.500 people coming onboard, thanks to the new direct hiring authority, and he committed to catching up with the backlog by the end of the year, although his term ends in November. 

“We’re trending in a good direction, and I am committed to being healthy by the end of this year,” he said, although he acknowledged that unforeseen circumstances such as another COVID surge could disrupt those plans.

Paper tax returns in particular exacerbated many of the processing delays at the IRS during the pandemic, especially when unopened correspondence piled up outside IRS facilities in 2020. “What’s the driver of the inventory is for the most part the people who answer the phones also are responsible for conducting resolution of the paper that we’re left with,” said Rettig. “We have made various decisions. We leave people on the phones, and then in theory when the phone volume would come down, they would move to the paper. Well, we have not had either of those volumes come down in two years. We currently have moved people into the paper processing, trying to answer the phones the best we can, trying to get people to interact with us [online]”

The TIGTA report noted that the IRS continues to offer self-assistance options that taxpayers can access at any time, including its IRS2Go app, YouTube videos, and interactive self-help tools on IRS.gov. In addition, the IRS offers Instagram, Twitter and Facebook. As of March 4, 2022, taxpayers made 35.9 million total attempts to contact the IRS by calling the various customer service toll-free telephone assistance lines. The IRS reported that 7.4 million calls were answered with automation, and telephone assistors answered 2.7 million calls and provided a 19.5% level of service with a 24-minute average speed of answering the phones.