More than 21 million paper tax returns are still waiting for processing by the Internal Revenue Service, as the tax agency struggles to swiftly disburse refunds to American households, according to a watchdog report released on Wednesday.
Most taxpayers file their returns electronically, but millions of others – disproportionately the elderly – still fill out their returns manually. National Taxpayer Advocate Erin Collins said in her report that the IRS backlog this year is 21.3 million paper returns, 7% more than the 20 million that were awaiting processing at the same time last year.
The report may add to the political headaches for the IRS, with Commissioner Charles Rettig’s term set to expire at the end of this fall. The agency has faced budget cuts, outdated technological systems and a depleted workforce that have made it less responsive to taxpayer needs. But the growth of the backlog of paper returns relative to last year amounts to a setback for the agency, after Rettig vowed to “crush” the backlog this year.
“Unfortunately, at this point the backlog is still crushing the IRS, its employees, and most importantly, taxpayers,” Collins said in her report. “These processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many.”
The IRS in a statement on Wednesday disputed the advocate’s report, saying that the most recent figures show total paper returns are now down to 19.1 million – compared to 19.9 million at the same time last year.
“The inventory numbers presented in the National Taxpayer Advocate report are neither the most accurate nor most recent figures,” the statement said. “Newer numbers through June 10 demonstrate that the IRS is ahead of tax return processing compared to a year ago.”
The IRS faced tremendous challenges during the pandemic, both because much of its workforce went remote and because Congress gave the agency huge new responsibilities for allocating COVID assistance. But as those programs have come to an end, tax experts have looked to the agency to restore service in some of its more traditional functions – such as improving the processing of annual taxpayer returns. Americans who file paper forms tend to have an average wait of about six months, and these returns often provide thousands of dollars in refunds to low-income workers that can be critical for supplementing their incomes.
Biden officials defended the agency’s work while pointing to Republican-led budget cuts to explain the IRS’s shortcomings. In a letter to Senate Finance Committee Chair Ron Wyden, D-Ore., Rettig and Deputy Treasury Secretary Wally Adeyemo said the IRS had cleared all 8 million unprocessed returns from last year, while also pointing to the improvements in processing electronic returns.
IRS workers processing submissions have logged 500,000 hours of overtime this year, with 2,000 employees shifting from other parts of the agency to process returns, according to Rettig and Adeyemo.
“The agency is making every investment it can to meet the moment, finding ways to improve technology and decrease hours spent on manual review,” the letter states.
The taxpayer advocate’s report documents other shortcomings of the agency. The IRS, for instance, received 73 million phone calls in the 2022 filing season, but only 1 in 10 reached an IRS employee. The number of requests was far lower than last year amid confusion about stimulus checks and other programs, but the response rate was similar.
Mark Everson, who served as the IRS commissioner during the George W. Bush administration and is now vice chairman at the consulting firm alliantgroup, commended the IRS for swiftly disbursing stimulus checks and President Biden’s monthly child tax credit last year. But Everson said the agency must focus on getting the paper returns processed as soon as possible. House Ways and Means Chair Richard Neal, D-Mass., also said in a statement that the backlog shows that “the IRS needs additional resources to carry out its core mission.”
“The service has been clearly unable to dig out of its backlog,” Everson said. “To restore credibility, they need to get this done.”
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