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WASHINGTON — Treasury Department officials on Monday said that the IRS will face "enormous challenges" during this year's tax filing season, warning that refunds could be delayed.
In a phone call with reporters, Treasury officials predicted a "frustrating season" for taxpayers and tax preparers because of delays caused by the pandemic, years of budget cuts to the IRS and federal stimulus measures that have added to the workload.
Typically, IRS officials enter filing season with an unaddressed backlog of roughly 1 million returns. This year, however, the IRS will enter the filing season facing "several times" that, Treasury officials said, although they declined to give a more precise estimate. The IRS website says that as of Dec. 23, 2021, it still had 6 million unprocessed individual returns, and as of the start of this month it still had more than 2 million unprocessed amended tax returns, a separate category.
The IRS closed last filing season with more than 35 million unprocessed returns — a fourfold increase from the last year before the pandemic. As the backlog increased, the IRS also failed to respond to the enormous increase in calls for assistance. Only 9 percent of calls were answered by an IRS customer service representative, while only 3 percent were answered for the Form 1040 support line for individual income tax returns, according to the National Taxpayer Advocate, a watchdog group.
The pandemic forced the closure of many in-person centers where paper forms are processed, while also affecting the IRS workforce. But even before the pandemic, budget cuts to the IRS forced by Republicans had led to a roughly 25 percent decline in the size of its staff. And these challenges were exacerbated by the federal response to the pandemic, which required the IRS to implement big new programs — from stimulus payments to the expanded child tax credit — for tens of millions of families.
"By definition, no matter how much more efficient you are, you can't lose 25 percent of the workforce and assume you can do the same volume of work. It's a problem across the board — information technology, revenue agents, people answering the phones," said John Koskinen, who served as commissioner of the IRS under both Presidents Barack Obama and Donald Trump.
"The fact the filing season has gone so well over the last three years is an amazing tribute to the capacity of the workforce, but if you keep underfunding the place it's not a question of whether it will have a major problem. It's a question of when."
Treasury officials said the tax filing deadline for 2021 income is April 18. Treasury officials said there are no current plans to extend that deadline this year, urging taxpayers to file early.
Treasury officials also urged taxpayers to file their returns online and create an account at IRS.gov.
The IRS budget has been significantly cut by roughly 20 percent over the past decade across its major areas of operation, including tax enforcement, taxpayer services and agency expenses for information technology, among other needs.
The decline in taxpayer enforcement has spurred a wave of concern about the ballooning "tax gap," or the discrepancy between what taxpayers owe and what the agency collects. Nonpartisan estimates put the figure in the range of hundreds of billions of dollars every year. The Biden administration has pushed to beef up the IRS's tax collection budget, hoping to spend $80 billion more on this area, saying in part that collecting that additional revenue will help it pay for other priorities.
Democratic lawmakers have also pushed to bolster the agency's funding more broadly through the congressional appropriations process in a way that would offer more taxpayer services. The IRS budget is approximately $12 billion.
The House approved a 14 percent increase to the agency's budget as part of its budget proposal. But that effort is tied up in the Senate, and the federal government is on track to be funded at existing levels until February. Many Republicans oppose an expansion of the IRS budget.
Even if the IRS budget is increased, it would likely not be in time to allow the agency to hire for this filing season. As a result, the IRS heads into its busiest time of year with a workforce that is now the same size as it was in 1970 — even though the U.S. population has grown by 60 percent since then, Treasury officials say.
The agency also had fewer than 15,000 people tasked with handling more than 240 million calls, which translates into roughly 16,000 calls per employee. Treasury officials also said there are fewer auditors at the IRS that at any point since World War II.
Roughly 90 percent of taxpayers file their returns electronically, but about 10 percent still mail them in on paper — the category that causes the most delays. The National Taxpayer Advocate's report points out that many taxpayers filing printed returns would prefer to do so electronically but can't because they are required to submit statements or other forms the IRS doesn’t process online.