7 Signs Tax Season Is Shaping up to Be a Mess This Year
If you think your winter blues are bad right now, just wait 'til you hear about the IRS.
At the same time Americans are beginning to file their 2021 tax returns — which are tricky enough for the agency to process due to pandemic policies like the stimulus checks and advance child tax credit payments — IRS staffers are frantically working to clear a massive backlog of old paperwork.
The most recent filing season statistics, which came out Friday, show that more than 26 million tax returns for 2021 have already been turned in, with nearly 9 million resulting in refunds.
"The IRS is off to a strong start to this year's tax season," the agency said in a statement.
But this is the third tax filing season that's taken place during the COVID-19 crisis, and the cracks are arguably starting to show for the overwhelmed, under-staffed IRS. According to a January report from the Taxpayer Advocate Service, the IRS was only able to answer 11% of the 282 million customer service calls it got in 2021. Tons of tax returns for 2020 are still being processed, and some Americans haven't gotten their tax refunds yet.
None of this bodes well for 2022.
"I suspect the problems this year will only add to people’s frustration," Howard Gleckman, a senior fellow at the Urban Institute, writes in an email to Money. "Their inability to get questions answered by phone or on the website, struggles setting up an online account, and confusion about issues such as the child tax credit will hurt the agency’s credibility even more. To the degree they have to wait a long time for refunds, they will get even more frustrated."
IRS tax season problems
As April approaches, here are seven signs that could indicate a particularly rocky filing season this year:
The backlog from 2021 may be bigger than initially thought
The Washington Post reported this week that the IRS backlog includes almost 24 million 2020 tax returns that need manual processing in order to move forward. This is a higher number than previously indicated by the Taxpayer Advocate Service report, which said the IRS ended the year with at least 9.8 million individual returns still processing.
The discrepancy depends on how you calculate it, but everyone can agree on the underlying issue: The backlog is a major problem.
The IRS has begun publicly blaming its computers
The IRS posted a statement on its website Jan. 27 explaining the situation and linking the backlog to the agency's inadequate funding and "outdated technological ecosystem."
"While we will make every effort to find improvements to help taxpayers, we will have to do so in the constraints of an outdated system, where a seemingly simple modification could run the risk of jeopardizing the overall operating system critical to the current tax season — and the more than 160 million returns we anticipate receiving," the letter read.
It can't seem to manage to hire people to help
The backlog is so large in part because there aren't enough IRS employees to work on it. At a Feb. 8 House Ways and Means subcommittee hearing, National Taxpayer Advocate Erin Collins said the IRS wanted to hire 5,000 extra people to work on its campuses but has filled fewer than 200 roles.
Low pay may be partially to blame. The base salary for many entry-level IRS employees is $24,749, leading Collins to remark that "in this economy, it is not surprising that the IRS is having difficulty finding enough suitable job applicants."
Lawmakers are considering pausing audits
During the hearing, Rep. Tom Rice, R-S.C., pointed to an editorial written by Nina Olson, the director of the Center for Taxpayer Rights, that proposed stopping audits for four months while the IRS gets back on its feet. Olson suggested an audit pause would "free up resources to be deployed to customer service functions and reduce the calls and correspondence that must be processed during the filing season."
Rice said this recommendation and others were worth consideration.
"To be honest, I'm a bit hesitant about pausing all audits — I used to be a tax lawyer and a CPA — that would be a serious action that could have a serious impact on the agency," he added. "But in the end, I think this type of drastic action should be considered to mitigate this problem. That's how serious the current crisis is."
Existing IRS staffers are getting moved around
Politico reported that 1,200 IRS workers were being temporarily reassigned in order to help clear the backlog as fast as possible. Most of the staffers previously worked in accounts management but moved on; IRS Commissioner Chuck Rettig reportedly told them in an email he needed their experience because they "are in the best position to provide the much needed skills and support to serve the taxpayers represented in these inventories."
In the statement, Rettig said the agency is in "all hands on deck" mode, "leaving nothing off the table for consideration to improve overall service." He sent a letter to the 500-plus members of Congress, as well, saying that the IRS has implemented mandatory overtime and is prepared to "rapidly adapt to changing circumstances, when appropriate to do so."
In addition, Collins has suggested outside vendors and possibly automation to help with manual work.
The IRS has stopped sending out certain notices
In its January statement, the IRS said it had stopped sending notices in situations "where we have credited taxpayers for payments but have no record of the tax return being filed." On Feb. 9, it suspended more letters, including CP80 (for unfiled tax returns) and CP501 (for balances due), among others, "to help avoid confusion for taxpayers and tax professionals."
It noted that it legally can't stop all notices, though. Collins has also pointed out that the letters may, in fact, be helpful for taxpayers because interest could accrue and penalties could stack up.
Even accountants are frustrated
Tax professionals are speaking out about how hard it is for them to navigate the chaos at the IRS. The American Institute of CPAs, which had been pushing the IRS to provide relief to certain taxpayers and pause automated compliance actions, released a statement last week saying it was encouraged by the agency's recent moves — a "welcome step." But it also asked the government to go further.
"We continue to urge the IRS to consider additional recommendations for relief by providing longer account holds, easier reasonable cause relief and expanded payment safe harbors until the IRS can significantly and meaningfully reduce their processing backlog," AICPA added.
Jan F. Lewis, the chair of AICPA tax executive committee, told lawmakers during yet another recent hearing that accountants are increasingly feeling "powerless" to help their clients.
Without other options, some are going to extreme lengths to get answers from the IRS. The Associated Press published a story Tuesday about enQ, a company that allows tax attorneys, accountants and other tax preparers to avoid long wait times when calling the agency — for the low cost of roughly $300 a month or $1,000 a year.
While that fix may work for them, ordinary consumers aren't quite so lucky. If you're worried about this tax season, the best you can do is likely to file early, accurately and electronically, and opt for direct deposit if you're getting a refund.
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