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Tax & AccountingJanuary 17, 2023

Taxpayer advocate: IRS better prepared for tax season with customer service hires; challenges remain

National Taxpayer Advocate Erin M. Collins (Advocate) released the 2022 Annual Report to Congress (Report) on January 11, 2023. The report states what most of us already knew; tax professionals and taxpayers "experienced more misery in 2022" due to paper processing delays and poor customer service. Despite these challenges, she believes the agency is better prepared for the coming tax season.  

Reducing the volume of unprocessed tax returns and correspondence and using a portion of the increased IRS funding provided by the Inflation Reduction Act to hire an additional 4,000 staff to help answer phones, process returns and handle additional paperwork. That being said, she believes real improvements in service are not likely to be seen until mid-2023, given the need to train and otherwise get the new hires "up to speed." 

The Advocate's report assesses taxpayer service during 2022, identifies the ten most serious problems tax professionals and taxpayers are experiencing in their dealings with the IRS, and makes administrative and legislative recommendations to help address those problems.

Key taxpayer service challenges

Return processing and refund delays.  

The report says the IRS failed to meet its responsibility to pay timely refunds to millions of taxpayers for the third year. About 13 million individual taxpayers filed paper returns. Because of paper processing delays, these taxpayers' refunds were generally delayed by six months or longer.  

Millions of e-filed individual returns were "suspended" because they tripped IRS processing filters and required manual review by IRS employees before refunds could be released. Hundreds of thousands of business returns claiming the Employee Retention Tax Credit were delayed. 

The number of returns suspended during processing is the only significant return category in which inventories increased. The IRS entered 2022 with an inventory of 4.2 million suspended returns. The inventory grew to 5.9 million suspended returns by mid-December. 

Cases involving suspected identity theft account for about half the inventory of suspended returns. In mid-December, the IRS reported 2.9 million identity theft cases in its inventory. While some will turn out to be fraudulent claims, the IRS website, as of January 9, states:  

"[D]ue to extenuating circumstances caused by the pandemic, our identity theft inventories have increased, and on average, it is taking about 360 days to resolve identity theft cases." The report calls a year-long delay "unacceptable" and urges the IRS to assign additional employees to process these cases.

Some light and the end of the tunnel for the 2023 filing season.

The Advocate believes the IRS will be starting the 2023 filing season in much better shape than the last two years. The IRS began 2022 with an unprocessed paper backlog of 4.7 million original individual returns (Forms 1040), 3.2 million original business returns, and 3.6 million amended returns (individual and business combined).  

As of mid-December 2022, the IRS had reduced those backlogs to 1 million original individual returns, 1.5 million original business returns, and 1.5 million amended returns. By December 23, the IRS had further reduced its unprocessed paper backlog of original individual returns to about 400,000 and original business returns to about 1 million.  

The report states that the significant reduction in the paper return inventory should enable the IRS to begin processing paper-filed tax year 2022 returns during the upcoming filing season. That contrasts with the previous two years, when the IRS was not able to process current-year returns until months after the filing season had ended.

Delays in processing taxpayer correspondence and other cases in accounts management.

The IRS sent millions of notices to taxpayers during 2022. These included 17 million math error notices, Automated Underreporter notices (where an amount reported on a tax return did not match the corresponding amount reported to the IRS on a Form 1099 or other information reporting document), notices requesting a taxpayer authenticate identity where IRS filters flagged a return as potentially fraudulent, correspondence examination notices, and some collection notices.  

Notices often require written taxpayer responses. If the IRS did not process a taxpayer response, it may have taken adverse action against the taxpayer or not released the refund claimed on the tax return.  

During fiscal year (FY) 2022, it took the IRS an average of 193 days to process taxpayer responses to proposed tax adjustments – about six months. That compares with 89 days in FY 2019, the most recent pre-pandemic year. The report also calls the delays in resolving these cases unacceptable. 

Difficulty reaching the IRS on its toll-free telephone lines. 

The IRS received 173 million calls during FY 2022. Only 22 million (13%, or roughly one out of eight calls) got through to an IRS employee.  

Telephone service for tax professionals, the Practitioner Priority Service (PPS) telephone line was worse than the prior year and hit an all-time low. In FY 2022, IRS employees answered only 16% of PPS calls (fewer than one out of six), and the average hold time for those who got through was 25 minutes.  

Tax professionals are key to a successful tax administration," Collins wrote. "The challenges of the past three filing seasons have pushed tax professionals to their limits, raising client doubts in their abilities and creating a loss of trust in the system.

Advocate's outlook for 2023. 

The Advocate predicted that taxpayer service will improve in 2023. "We have begun to see the light at the end of the tunnel," she wrote. "I am just not sure how much further we have to travel before we see sunlight." 

The report cites three reasons for this positive view:

  1. the IRS has largely worked through its backlog of unprocessed tax returns, even though it remains challenged with a high volume of suspended returns and correspondence;  
  2. Congress has provided the IRS with significant additional funding to increase its customer service staffing; and  
  3. using Direct Hire Authority, the IRS has recently hired 4,000 new customer service representatives, and it is seeking to hire 700 additional employees to provide in-person help at its Taxpayer Assistance Centers.

But the Advocate cautions that the improvements will not be immediate. "Staff increases come with growing pains," she wrote. "As new employees are added, they must be trained. The IRS does not maintain a separate cadre of instructors for most jobs.  

Instead, experienced employees must be pulled off their regular caseloads to provide the initial training and act as on-the-job instructors. In the short run, that may mean fewer employees are assisting taxpayers, particularly experienced employees who are likely to be the most effective trainers." 

She also pointed out that until additional fully-trained employees are on board, taxpayer service will continue to be a zero-sum game. For example, customer service representatives in the Accounts Management function split their time between answering the phones and processing taxpayer correspondence.  

If the IRS assigns more employees to answer the phones, correspondence processing will be slower. Phone service will decline if the IRS assigns more employees to process correspondence. 

"The IRS will have to perform a difficult balancing act with its current resources and must ensure it does not create a new paper backlog in 2023 by reassigning too many Accounts Management employees from processing case inventories to answering the phones," she writes.  

The IRS needs to end the vicious cycle of paper backlogs. As employees are trained and report for duty, I expect we will start to see service improvements, probably by the middle of 2023.
National Taxpayer Advocate Erin M. Collins

Taxpayer advocate service administrative recommendations to the IRS.

The report also makes administrative recommendations to the IRS. In August 2022, Congress enacted the Inflation Reduction Act (IRA), which provided the IRS with funding of nearly $80 billion over the next ten years to supplement its annual appropriations. The report said that this additional funding could be a gamechanger for taxpayers and tax professionals. 

"If spent wisely, this funding will give IRS management the tools it needs to bring U.S. tax administration into the 21st century by enabling it to hire and train the workforce of the future, replace antiquated IT systems, and generally revamp the taxpayer experience based on principles of fair and equitable tax administration," Collins wrote. 

In an August 17, 2022, memorandum, the Secretary of the Treasury directed the IRS Commissioner to produce an operational plan within six months that details how the additional IRA funding will be spent. In the report's preface and in discussing the 10 most serious taxpayer problems, the Advocate recommends numerous initiatives for inclusion in the plan, including the following:

  1. Hire and train more human resources employees to manage hiring all IRS employees.  
  2. Ensure all IRS employees – particularly customer-facing employees – are well-trained to do their jobs.  
  3. Create robust and accessible online accounts with functionality comparable to that of private financial institutions and through which taxpayers and practitioners can access, download, and upload material information.  
  4. Temporarily expand uses of the Documentation Upload Tool (DUT) or similar technology.  
  5. Improve the readability of tax transcripts.  
  6. Enable all taxpayers to e-file their tax returns.    

National taxpayer advocate "purple book": legislative recommendations to strengthen taxpayer rights and improve tax administration 

In addition, the report includes the National Taxpayer Advocate's 2023 Purple Book that proposes 65 legislative recommendations for consideration by Congress.

Other sections in the report

The report contains additional information including a taxpayer rights assessment that presents performance measures and other relevant data, a description of TAS's case advocacy operations during FY 2022, a summary of key TAS systemic advocacy accomplishments, and a discussion of the 10 federal tax issues most frequently litigated during the preceding year.  

More information can be found by reading the full taxpayer advocate report.

What can we expect for the 2023 tax season? 

Clearly, the IRS has made significant progress to return to "normal." That is, they will be ready to process current-year returns on a much more timely basis…more in line with pre-pandemic levels. The result is that taxpayers should receive tax refunds significantly sooner than they have since the COVID lockdowns, even for those filing paper returns.  

In addition, the hiring of what will soon be close to 5,000 new staff should help in getting through to a person at the IRS on both the PPS and taxpayer phone lines. As the Advocate cautions, the new staff will take time to be trained and fully functional. She estimates that significant improvements to customer service should not be expected until mid-2023. Tax professionals and taxpayers will likely endure another challenging (if not somewhat improved) tax season.   

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Mark Friedlich
Vice President of US Affairs for Wolters Kluwer Tax & Accounting
Mark Friedlich, a CPA & tax lawyer, is the Vice President of US Affairs for Wolters Kluwer Tax & Accounting. He is a member of the U.S. Senate Finance Committee’s Chief Tax Counsel’s Advisory Board, advisor to 14 state taxing authorities, and has been a member of the American Bar Association’s Tax Section and AICPA’s Tax Section leadership teams. Prior to joining Wolters Kluwer he was a COO and Principal at PwC.


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