2021 May Be The Most Challenging Year Yet For Taxpayers

Erin M. Collins, a National Taxpayer Advocate, released her annual report to Congress, calling 2021 the most challenging year taxpayers and tax professionals have ever experienced. With lengthy delays by the IRS in processing tax returns and taxpayer correspondence, overwhelmed telephone assistance, shortcomings in the Service’s relatively new online taxpayer tools, and difficulties even for Collins’s own Taxpayer Advocate Service (TAS) in fulfilling its mission, all combined to make the year a historic ordeal.

As of late December 2021, the Service was processing a backlog of 6 million original paper individual returns; 2.3 million amended individual returns; 2 million Forms 941 and 941X, and about 5 million items of taxpayer correspondence. The report assesses the IRS’s performance in serving taxpayers and protecting their rights, identifies the most serious problems in federal tax administration, and highlights TAS’s operations. It discusses the 10 most serious problems taxpayers encountered and analyzes the most-litigated tax issues during the year.

Collins noted that unprocessed returns often delay refunds for low-income taxpayers who in some cases were depending on the earned income tax credit, child tax credit, and other tax benefits for basic subsistence. The correspondence backlog creates cascading problems. When a taxpayer has responded to a notice, but the IRS does not process the response, an automatic action can then be triggered, taking an adverse action or withholding a refund, she said. All told, the IRS took an average of 199 days during 2021 to process the 6.2 million taxpayer responses to proposed tax adjustments. In the fiscal year 2019, that average time was 74 days.

The IRS’s online tool “Where’s My Refund?” did not provide information on unprocessed returns or explain reasons for delays, where a return stood in the processing pipeline, or tell what actions taxpayers could take to expedite refunds. Their telephone service was the worst it has ever been with only about 11% of callers getting through to a customer service representative. The average time waiting for those successful calls to connect was 23 minutes.

To its credit, however, the IRS deployed new programs mandated by Congress, issuing 478 million economic impact payments totaling $812 billion and over $93 billion in advance child tax credits to more than 36 million families. Moreover, it did so while its workforce was 17% lower than in the fiscal year 2010. Collins recommends that the IRS use scanning technology to reduce its dependence on having staff type information from paper returns and correspondence into its systems and deploy a callback feature on its phones. She also suggested, as she has previously, that the Service improve its online taxpayer accounts and allow taxpayers to communicate by secure email with the IRS. And she recommended the IRS website feature a weekly dashboard on its performance and delays.

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