Continued personnel shortages and a growing backlog of some returns
significantly impeded the IRS’s performance during the 2022 income tax
filing season that ended last month, the Treasury Inspector General
for Tax Administration (TIGTA) reported in a preliminary audit.
The report, Interim Results of the 2022 Filing Season (Rep’s No.
2022-40-035), dated May 2, provided a snapshot of the IRS’s handling
of returns amid its ongoing administrative challenges, as measured
between Jan. 31, 2022 (a week after it began processing individual
returns), and March 28, 2022. It builds upon other, more targeted
interim audits and previous reports and will be followed up with a
further examination of the full 2022 season, TIGTA said.
A major contributing factor to the IRS’s difficulties was having to
implement several new law provisions for the 2021 tax year, TIGTA
noted, and the report includes an early assessment of the Service’s
accuracy in that regard. One of those provisions concerned the Sec.
36B premium tax credit and TIGTA also released a final audit report,
American Rescue Plan Act: Implementation of Premium Tax Credit
Provisions (Rep’s No. 2022-47-034), covering changes in that credit
that were enacted by the American Rescue Plan Act (ARPA), P.L. 117-2,
including for the 2020 tax year.
Staffing plans fell short
TIGTA’s findings suggested that gains the IRS made in expanding its
workforce as planned came too little or too late to significantly
affect filing season operations. For example, as of March 15, 2022,
the IRS had added 521 new employees to its Submission Processing unit,
which was only 9.5% of its hiring goal of 5,473, TIGTA reported.
Hiring was more successful in its Accounts Management function,
meeting 76.5% of its goal of 5,000 more staff members. However, TIGTA
noted, that Accounts Management employees also are responsible for
answering toll-free telephone calls in addition to taxpayer
correspondence — and both functions are further degraded during the
filing season.
The number of assistor toll-free incoming calls answered during 2022
(as of March 4) was far fewer in 2022, falling to 2,688,000 from
4,444,000 in 2021 (as of March 5), with the level of service, or
percentage answered, falling to 19.5% in 2022 from 27.3% in 2021. And
the average speed of answering those calls increased, to 24 minutes in
2022 from 18 minutes in 2021.
Processing taxpayer correspondence lagged
Taxpayer correspondence remained an Achilles’ heel, as well. As of
March 19, 2022, Accounts Management’s inventory included 7.6 million
cases — a relatively minor net difference from the 8 million cases the
function held at the end of 2021. Overaged cases within that inventory
have remained an ongoing challenge, TIGTA reported. The IRS “has not
taken any significant actions to address the continued lack of quality
customer service it offers taxpayers corresponding with the IRS,”
despite TIGTA’s earlier recommendations that it said could improve
account service.
Unlike with other agencies and businesses serving the public,
“correspondence continues to be a primary method for taxpayer
communication with the IRS,” TIGTA noted. “For example, taxpayers must
mail correspondence to the IRS when addressing certain tax account
issues, such as responding to an IRS notice or letter.” According to
TIGTA, the IRS had no unopened mail at the end of 2021 (however, in
late December 2021, about 5 million pieces of correspondence were
still being processed, National Taxpayer Advocate Erin Collins has
reported) but 508,474 unopened mail items as of March 12, 2022.
Return backlog nearly static
Paper-filed and amended returns also contribute to the problem, both
only slightly smaller components of unprocessed returns on the week
ending March 12, 2022, compared with the week ending Dec. 31, 2021.
Original returns on paper fell slightly, to nearly 4.5 million, from
the 4.7 million returns at the end of 2021, while amended returns
awaiting work were down to 2.24 million from 2.38 million. One
potential reason is both categories of unprocessed returns at the end
of 2021 were higher than at the end of 2020 and an order of magnitude
greater than at the end of 2019. By comparison, original paper returns
awaiting processing at the end of 2019 numbered only 183,000 and
amended returns 110,443.
New laws’ implementation appears generally correct
Better results were reported with respect to the IRS’s implementation
of law changes to individual tax credits, which included an expanded
child and dependent care credit, an expanded and partially
advance-paid child tax credit, an expanded earned income tax credit,
and changes to the premium tax credit. TIGTA examined the accuracy of
the Service’s “e-file business rules” and error resolution codes as
applied to the changes. TIGTA said it was still testing those business
rules and error codes with respect to the child and dependent care
credit and the premium tax credit.
But TIGTA’s testing of rules for the child tax credit, including
advance payments, “showed they are working as intended.” As of March
2, 2022, the IRS had processed more than 14.9 million returns claiming
$82.7 billion in child tax credits, of which $33.7 million had been
paid in advance during 2021. A separate ongoing review will assess
whether taxpayers correctly reconciled advance payments with their
final credit amount.
Similarly, TIGTA said the premium tax credit’s business rules were
working as intended although it was still testing its error resolution
codes.
ARPA premium tax credit changes
In the second report, on the IRS’s implementation of ARPA’s premium
tax credit provisions more generally, TIGTA said the IRS generally
correctly adjusted repayments of advance premium tax credit amounts
taxpayers received for the 2020 tax year, for which ARPA retroactively
removed a requirement to repay any excess advance credit. However, a
“clerical error” in September 2021 resulted in erroneously excessive
refunds to a few thousand taxpayers. The IRS eventually reversed those
transactions for all but two taxpayers and, as of Dec. 3, 2021, had
recovered $9.1 million, or 76% of the excessive refunds issued.
Also with respect to 2020 tax year returns, TIGTA identified more than
30,000 taxpayers for whom the advance premium tax credit adjustments
rendered them eligible to claim additional child tax credits, but the
IRS could not make that follow-on adjustment and did not initially
notify the affected taxpayers to file an amended return to claim the
additional child tax credit amounts. The IRS had agreed to update its
website and to send affected taxpayers a notice to that effect, TIGTA
reported.
Another ARPA premium tax credit change affected the tax year 2021
returns: Taxpayers who received or were approved to receive
unemployment compensation for at least one week during 2021 were
treated as meeting the income eligibility limits for the credit, and a
household income limitation was relaxed. TIGTA found that the IRS had
not developed procedures to verify taxpayers’ reports of receiving
unemployment compensation for this purpose. Thus, TIGTA recommended in
September 2021 that the IRS require documentation from taxpayers and
try to identify returns with potentially questionable claims, such as
where a return reported no unemployment compensation income. The IRS
disagreed or partially disagreed with most of these recommendations
but said it planned to verify receipt of unemployment “as part of its
post-processing compliance efforts.”