Where Is My Refund? Underfunding and Lack of Resources at the IRS Continues to Be a Problem

The Taxpayer Advocate Service (TAS), an independent organization within the IRS that is tasked with looking out for the rights and needs of taxpayers, recently delivered its annual report to Congress. The 2021 National Taxpayer Advocate (NTA) Annual Report identifies the 10 most serious problems facing taxpayers. To meet its responsibilities to serve as a safety net for taxpayers, the TAS uses this Report to address these problems and recommend solutions to Congress and the highest levels of the IRS. This year’s report did not shine a positive light on the Agency, which has been struggling to meet taxpayers’ needs due to a lack of sufficient resources.

“There is no way to sugarcoat the year 2021 in tax administration:
From the perspective of tens of millions of taxpayers, it was horrendous.”

ERIN M. COLLINS, NATIONAL TAXPAYER ADVOCATE

The NTA Annual Report was highly critical of the performance of the Internal Revenue Service, and pointed out the issues having the most negative impact on taxpayers:

  • Processing Backlogs Led to Long Refund Delays. Updates on IRS.gov note that as of December 31, 2021, the Agency had a backlog of 6 million unprocessed individual returns, 2.3 million unprocessed amended individual returns, and 2 million employer quarterly tax returns that need to be processed before an additional 500,000 amended quarterly employer tax returns can be processed.
  • Telephone Service Was the Worst It Has Ever Been. In FY 2021, the IRS received about 282 million telephone calls. Customer service representatives (CSRs) only answered about 32 million (11%), of those calls.
  • The IRS Took Months to Process Taxpayer Responses to Its Notices, Further Delaying Refunds and in Some Cases Leading to Premature Collection Notices. For many IRS programs, the “normal” processing time for taxpayer correspondence is 45 days. Current processing time for some categories of correspondence has been running six months or longer.
  • Lack of Status Updates on Refunds. The IRS heavily promotes the online Where’s My Refund? tool, however, significant limitations rendered it non-functional for tens of millions of taxpayers experiencing delays.

According to a January 26 letter to Treasury Secretary Janet Yellen, the IRS as of December 23, 2021, had a backlog of 6 million individual income tax returns and another 2.3 million amended individual tax returns, as well as 2 million employer quarterly tax returns that need to be processed before an additional 500,000 amended quarterly employer tax returns can be processed.

Additional challenges and workload strains caused by COVID-19 certainly exacerbated the problems at the IRS, but the NTA Annual Report noted that the Agency has struggled to overcome revenue and staffing shortages for many years. Additional funding is sorely needed for the IRS to improve its technology systems. The two IRS systems containing the official records of individual and business taxpayer accounts are the oldest major technology systems in the federal government. The IRS also has about 60 case management systems that generally are not interconnected. These obsolete IT systems limit the functionality of online taxpayer accounts, prevent taxpayers from obtaining full details about the status of their cases, and prevent the IRS from selecting the best cases for compliance actions. Although the Agency is making strides with its case management system, it still has a long way to go.

The TAS also admitted that limited resources have also impacted its ability to provide a high of a level of taxpayer services in recent years. This deficiency was attributed in part to the inability to close cases due to IRS delays, but also because of an increased number of cases and its own staffing shortages. Taxpayers who need additional assistance can visit the TAS website for more information about who to contact for help with specific problems.

As a Firm, we are consistently working with the IRS on client issues and notices. To be blunt, dealing with the IRS is never easy and generally takes a considerable amount of time to work through even the most routine discrepancy. It is rare that a problem can be resolved with one phone call. Also, it is not unusual to be on hold for several hours only to be connected to an IRS representative that has no ability to understand the problem, let alone fix it. While we have found some “tricks” in accelerating the process, it is still a frustrating and time-consuming process. While the pandemic has further exposed the problem, we all know that the IRS was not in a good place going into 2020 as they are grossly under-staffed, under-trained and under-funded. We will continue to work hard to deal with these problems with the hope that some improvements will be made at the IRS.

The GYF Tax Services Group is also available to help you with any tax filing concerns and in working with the IRS to resolve issues. Please contact Don Johnston at 412-338-9300 or djohnston@gyf.com if you need assistance.

Don Johnston

Don Johnston

Don, a partner in the Tax Services Group, has over 30 years of public accounting experience. He has spent the majority of his career serving the tax and consulting needs of privately-held companies and their owners. Don also has expertise with issues related to business entity formation, transactions and exit planning.

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