IRS watchdog warns of a rocky tax season

Tax season began Monday on the heels of an ominous warning from the internal IRS watchdog: Expect delays, long ones.

In December, the IRS had 6.2 million unprocessed individual returns left over from last tax season. Too few IRS agents, working remotely because of COVID-19, struggled under last year’s increased workload, which included processing stimulus checks and advance child tax credit payments. Lawmakers and the agency’s ombudsman office have proposed solutions, including adding staff and updating technology. But some attempted improvements come with downsides, and the IRS can’t implement them in time for this tax season.

From January to July 15 last year, the IRS counted 11 million discrepancies between its numbers and taxpayers’ stimulus reports, dwarfing the 628,997 errors it corrected in the first half of 2020. Each error requires manual review. The IRS also struggled to distribute child tax credit payments accurately. According to the annual report by the Taxpayer Advocate Service, the IRS’ internal watchdog, call volume nearly tripled to a record 282 million phone calls last year. The IRS only answered about 11 percent of those calls, sometimes after taxpayers waited hours on hold.

And the IRS was already understaffed. Its workforce has shrunk by 17 percent since 2010, while individual tax return filings have increased by 19 percent. The agency relies heavily on computer systems more than 25 years old.

The Taxpayer Advocate Service recommended the IRS use scanners to machine-read paper returns and program its e-filing tool to accept more types of tax forms. That would reduce agent labor and transcribing errors: The Taxpayer Advocate reported agents made transcription errors on about 1 in 4 paper returns. President Joe Biden proposed spending an extra $80 billion on the IRS over the next decade, allowing it to hire more staff. But the measure, part of Biden’s roughly $1.75 trillion social spending package, has stalled in Congress. Joe Bishop-Henchman of the Taxpayer Defense Center at the National Taxpayer Union Foundation wrote that the IRS blames low funding but has resisted lower cost service improvements like online accounts, digital communication, and self-service kiosks. He noted the Biden-proposed funding focuses more on enforcement than customer service.

At least one attempt to improve the IRS’ systems comes with security concerns. Starting this year, taxpayers trying to access previous years’ IRS documents or the child tax credit portal must log in through ID.me, an identity verification system. Users must provide multiple identification documents (such as bills and social security cards), a phone number, and a selfie to compare with their photo ID. These attempts to prevent fraud can stymie legitimate logins. Colorado Public Radio reported it took one unemployment recipient months to get verified through ID.me because he didn’t have high-speed internet. “The service requires applicants to supply a great deal more information than typically requested for online verification schemes,” security researcher Brian Krebs wrote. “Many readers will be rightfully concerned about being forced to provide so much sensitive information to a relatively unknown private company.”

One IRS effort to help taxpayers appears to have backfired already. The agency sent letters to child tax credit recipients reiterating how much money they had received so far and urging them to refer to the letters when filing for the remainder of their payments. Some parents reported the IRS printed the wrong number on the letters. An IRS spokesman told reporters the agency didn’t know how many it had misprinted, but that it was well below hundreds of thousands. Still, parents may end up having to file amended returns to correct the error, which can take more than 20 weeks to process. 

The Taxpayer Advocate Service predicted a bleak filing season. “The unprecedented processing and refund delays taxpayers experienced in 2021 could be as bad, and potentially worse, in 2022,” its report read. “Taxpayers deserve better than this from the IRS.”