Watchdog says IRS still swamped by tax return backlog

The internal watchdog at the IRS said Wednesday that the agency is still buried in a mound of unprocessed tax returns, despite a progress report from the IRS earlier in the week that said the situation was getting better.

According to the National Taxpayer Advocate, the number of outstanding paper tax returns, as opposed to the electronically filed returns that are a lot easier for the agency to deal with, stands at more than 21 million as of late May this year. That’s 1.3 million more than the year prior.

“The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds,” National Taxpayer Advocate Erin M. Collins said in a Wednesday statement. “Unfortunately, at this point the backlog is still crushing the IRS, its employees, and most importantly, taxpayers.”

Hold times are also getting worse. The Office of the Taxpayer Advocate reported that the average time spent on hold for people calling the IRS with questions has increased by nearly 50 percent, from 20 minutes in 2021 to 29 minutes in 2022. This is despite a drop in call volume, which was down to 73 million from 167 million last year.

“The combination of more than 21 million unprocessed paper tax returns, more than 14 million math error notices, eight-month backlogs in processing taxpayer correspondence, and extraordinary difficulty reaching the IRS by phone made this filing season particularly challenging,” Collins wrote.

The IRS and its watchdog are telling different stories about the overall health of the agency as it struggles to get back on track following the pandemic, which caused it to close facilities in 2020 as well as perform the unusual task of sending out stimulus checks.

A Treasury official said Tuesday that the IRS had reached a milestone in clearing the 8 million original individual tax returns from 2021 and was in better shape this year than it was last year.

“The IRS has worked through almost a million more returns to date than it had at this time last year,” the agency said in a statement on Tuesday, seeming to contradict the Wednesday report from the Taxpayer Advocate.

However, the IRS also said that “to date, more than twice as many returns await processing compared to a typical year at this point in the calendar.”

The confusion is a sign that the agency is still under enormous pressure to normalize its operations and get back to business as usual following the unprecedented disruptions caused by the coronavirus pandemic.

The IRS announced a hiring initiative in March, saying it was going to bring on 10,000 new employees, with half of those being expedited hires. Three thousand job offers have already gone out, and 1,500 new employees have been successfully onboarded, the Treasury official said Tuesday.

IRS Commissioner Charles Rettig told Congress earlier this year that he wants to reduce the IRS backlog to “healthy” levels by the end of 2022, but as Taxpayer Advocate Collins pointed out, the agency “has not provided a definition of ‘healthy.’”

Collins said the backlog of tax returns caused by the pandemic is likely to continue into 2023.