National Taxpayer Advocate assesses tax filing season and identifies areas for IRS improvement in mid-year report to Congress

  
Today, National Taxpayer Advocate Erin M. Collins released her mid-year report to Congress. The report presents an evaluation of the 2021 filing season, identifies key objectives the Taxpayer Advocate Service will pursue during the upcoming fiscal year, and contains the IRS’s responses to the 73 administrative recommendations the Advocate made in her 2020 Annual Report to Congress.

The statutorily mandated report highlights the following significant challenges the IRS faced entering the 2021 filing season.

  • Agency operations remained at a reduced capacity due to social distancing measures taken to protect the health and safety of both taxpayers, employees, and their families due to the COVID-19 national emergency.
  • The IRS still had not processed all paper returns and correspondence received in the 2020 filing season. On December 25, 2020, the IRS estimated that it had more than 11.7 million paper-filed individual and business returns that it still needed to manually process.6
  • After the passage of late-year legislation, the IRS was tasked with quickly implementing programming changes to comply with these tax law changes.

“It was perhaps the most challenging filing season taxpayers, tax professionals, and the IRS have ever experienced. This past year and the 2021 filing season conjure up every possible cliché for taxpayers, tax professionals, the IRS, and its employees,” Collins wrote. “It was a perfect storm; it was the best of times and the worst of times; patience is a virtue; with experience comes wisdom and with wisdom comes experience; out of the ashes we rise; and we experienced historical highs and lows.”

During the 2021 tax filing season, the IRS processed 136 million individual income tax returns and issued 96 million refunds totaling about $270 billion. While most taxpayers filed their returns and received refunds, an unprecedented number did not. The IRS closed the most recent filing season with a backlog of over 35 million individual and business income tax returns as a result of pandemic-related challenges and economic relief efforts.

Erin Collins noted in her report that about 16.8 million paper tax returns are still waiting to be processed. Approximately 15.8 million returns require further review and another 2.7 million amended tax returns await processing.

"These processing backlogs matter greatly because most taxpayers overpay their tax during the year by way of wage withholding or estimated tax payments and are entitled to receive refunds when they file their returns," the report states. "Moreover, the government uses the tax system to distribute other financial benefits." So far for the 2020 tax year, the IRS issued about 20 million refunds that included Earned Income Tax Credit benefits worth up to $6,660 and about 15 million refunds that included Additional Child Tax Credit benefits worth up to $1,400 per qualifying child.

In light of this challenging tax season, the IRS can apply lessons learned from the pandemic to help identify or reprioritize needs for improved tax administration and taxpayer service. The report recommends the IRS take the following steps to improve taxpayer service and communication.

  • Prioritize the development of accessible, robust online accounts
  • Expand customer callback technology to all IRS toll-free telephone lines
  • Reduce barriers to e-filing tax returns
  • Utilize scanning technology for individual income tax returns prepared electronically but submitted on paper
  • Expand digital acceptance and transmission of documents and digital signatures
  • Offer videoconferencing options to taxpayers

 

The National Taxpayer Advocate made 73 administrative recommendations in her 2020 year-end report and then submitted them to the Commissioner. The IRS has agreed to implement 48 of the recommendations in full or in part.

The IRS’s responses are published in an appendix to the report.


More information can be found in IRS News Release 2021-139.


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