(CBS Philadelphia) – The Internal Revenue Service (IRS) had a busy 2021. According to a report by National Taxpayer Advocate Erin Collins released on June 30, the agency completed 136 million tax returns, distributed two more rounds of economic checks, and revised unemployment insurance rules, and introduced advance payments for child tax credit. The IRS achieved all of this during the latter part of a pandemic that came after a decade of staff and financial cuts. But their efforts to weather what Collins called the "perfect storm" fell a little short. The report indicated that over 35 million tax returns (about two-thirds of which were refunds) remained unprocessed or were in one of the various stages of processing.
"The IRS and its staff deserve great credit for what they have accomplished in very difficult circumstances, but there is always room for improvement." Collins wrote in her report.
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"This year the IRS has been dealing with an unprecedented number of returns that require manual verification, which is slowing the issuance of refunds," continued Collins. “These backlogs are of great concern as most taxpayers overpay their taxes during the year through withheld wages or estimated tax payments and are entitled to a refund when they make their declarations. In addition, the government uses the tax system to distribute other financial benefits. "
The 35 million outstanding returns at the time of the report account for 20 percent of the returns submitted. And with the federal tax deadline of May 17, which was two months ago, the IRS far exceeded its goal of processing tax returns in 21 days. There are various reasons for the delay.
Start from the back
Many of the factors that contribute to the backlog are largely beyond the control of the IRS. The agency's most recent tax season had millions of pending tax returns from 2019 and before. Like most office workers, many IRS employees had to do their jobs from home during much of the pandemic. Paper returns waiting in trailers to be processed were not accessible. Only when the workers returned to the office could they address them.
Changes to the tax code due to pandemics were also passed just a few weeks before the tax season. The Consolidated Appropriations Act of 2021, which contained the second stimulus package worth $ 900 billion, contains a "retrospective rule". This allows applicants who qualify for the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) to use their 2019 income to determine the correct amount for their 2020 return. The IRS did not have enough time to change forms and adjust computer systems. As a result, millions of forms have to be processed manually via their error resolution system.
Deviations from the Rebate Recovery Credit have also been reserved for manual processing. This is the credit that people can get if they received less than they received on their first or second stimulus check. At one point, the Treasury Inspector General for Tax Administration reported that about a third of those who requested the refund credit had their forms flagged for review.
More reasons for the backlog
As of early 2021, the IRS has issued the second and third economic impact payments, better known as stimulus checks. The second, for up to $ 600, was released in late December 2020 under the Coronavirus Response and Relief Supplemental Appropriations Act. The third, for up to $ 1,400, was released in mid-March under the American Rescue Plan Act. The IRS accepted tax returns on February 12th. So the last check was processed during tax season, the busiest time of the year.
Another important part of the American Rescue Plan is the updated Child Tax Credit. Starting July 15, the IRS will pay $ 3,600 per child to parents of children under the age of five. Half will come as a six month payment and half as a 2021 tax credit. That's $ 300 per month and another $ 1,800 at tax time. The total changes to $ 3,000 per child for parents ages six to 17, or to $ 250 per month and $ 1,500 at tax time. The IRS has also endorsed this new program of monthly child tax credits during the tax season. While the agency has now sent out three stimulus checks, it has no experience with millions of recurring payments. Resources devoted to establishing this program are resources that are not devoted to its core mission, which is "to provide world-class service to American taxpayers by helping them understand and comply with their tax obligations and with the law." To enforce integrity and fairness for all ”.
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Americans did not get this "high quality service" this year. The lower level of service started online and extended to face-to-face interactions over the phone.
With delays across the country, people searched the IRS's Where’s My Refund tool for information about their pending refunds. (For the 2021 filing season, the IRS processed $ 96 million in refunds totaling $ 270 billion.) The tool can notify a taxpayer that their filing has been received, approved, or sent. It does not provide details of what is holding the refund, what additional information might be required for processing, or when it might be issued. This lack of transparency inevitably forces people to call on the phone.
Taxpayers seeking information and advice turned to the agency's toll-free telephone lines. And the number of inquiries was overwhelming. The IRS received 167 million calls during the 2021 tax season, almost four times the number it received during the 2018 tax season. At peak times, there were 1,500 calls per second. Unsurprisingly, the level of service has dropped dramatically. Only nine percent of callers seeking tax assistance reached someone who could provide it. Specifically, calls to the 1040 support line only reached a live person 3 percent of the time
Revised and underfunded
The Collins report also cites limited resources and technology issues as reasons for delays in processing tax returns. The agency operated under many of the same restrictions that affected office workers around the world during the pandemic. This also included remote work, which can affect efficiency. The IRS is also understaffed and underfunded. Congress has continuously slashed the agency's budget over the past decade, with both funding and total employment falling by about 20 percent.
An IRS watchdog informed Congress that budget cuts are limiting the agency's ability to keep up with technology and collect taxes. The agency has been using an old programming language called COBOL for a long time. This isn't necessarily a problem unless the code isn't kept up to date. And the IRS didn't keep it up to date. So when stimulus checks or tax law changes are pending, the agency has to find and pay programmers to fix things. The IRS began modernization efforts in 2019 but was reliant on future funding. This funding has not yet taken place. As a possible example of the impact, the report said "42% of the printers and copiers in the IRS filing processing functions were unusable or defective". President Biden also plans to add $ 80 billion in funding to the agency over the next decade. The budget would grow by 10 percent per year, the workforce by 15 percent per year.
The disadvantaged start of the tax season contributed to the backlog of 35 million. The simultaneous commissioning of the IRS with stimulus checks and the updated child tax credit removed resources from the processing of tax returns. And a history of understaffing and underfunding has made them fail. All of this weighed on the Americans, who counted on timely refunds.
"The historically high number of IRS tax returns requiring manual review means that most individual taxpayers in this group, and many corporate taxpayers, do not receive timely refunds and have to wait for the IRS to finally process their tax returns," Collins wrote. “For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work on their backlog. But especially for low-income taxpayers and small businesses working on the margin, delays in reimbursement can create significant financial hardship. "
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First published on Friday, July 2, 2021 at 3:39 p.m. ET.