National Taxpayer Advocate Erin M. Collins released her 2023 Annual Report to Congress on January 10. The report credits the Internal Revenue Service with improving taxpayer services and developing plans to transform the taxpayer experience, but it identifies paper processing as an area of continuing weakness.
Taxpayer Service Challenges
Extraordinary delays in assisting victims of identity theft. At the end of fiscal year (FY) 2023, nearly half a million taxpayers with cases pending in the IRS’s Identity Theft Victims Assistance (IDTVA) unit were waiting an average of almost 19 months for the agency to resolve their identity theft problems.
Delays in processing amended tax returns and taxpayer correspondence. Despite the IRS’s success in eliminating its backlog of paper-filed Forms 1040, backlogs in processing amended individual income tax returns (Forms 1040-X), amended business tax returns and correspondence continued.
Challenges in receiving telephone assistance despite overall improvements. The report says the IRS deserves credit for achieving its goal of providing an 85% Level of Service on its AM telephone lines during the filing season, but it points out that the LOS is a highly technical measure that excludes the majority of calls the IRS receives from its calculation. During the same period that the IRS achieved an LOS of 85%, IRS employees answered only 35% of all calls received. For the full fiscal year, IRS employees answered 29% of all calls received.
Employee Retention Credit (ERC) processing. Employers who file eligible ERC claims are often waiting six months or longer to receive their credits or refunds. TAS has received several thousand ERC cases, and some have involved non-profit organizations that provide medical or other critical services and are depending on ERC refunds to stay afloat. As of early December, the IRS had a backlog of approximately one million ERC claims. The IRS has said many of the submitted claims are fraudulent or otherwise non-qualifying.
The report acknowledges the IRS is between a rock and a hard place in handling ERC claims. “If it pays claims quickly without adequate review, it could pay billions of dollars to nonqualifying persons. If it takes the time to review claims carefully, eligible employers will experience significant delays in receiving the credit, and in extreme cases, employers who need the funds immediately could go out of business,” the report says.
Administrative recommendations
1. Prioritize the improvement of online accounts for individual taxpayers, business taxpayers and tax professionals to provide functionality comparable to that of private financial institutions.
2. Improve the IRS’s ability to attract, hire and retain qualified employees.
3. Ensure all IRS employees – particularly customer-facing employees – are well-trained.
4. Upgrade the back end of the “Document Upload Tool” (DUT) to fully automate the processing of taxpayer correspondence.
5. Enable all taxpayers to e-file their federal tax returns.
6. Extend eligibility for first-time penalty abatement to all international information return penalties.
