January 16, 2023
The Taxpayer Advocate Service (TAS) released its annual report in January 2023. It provides a detailed analysis of the significant progress the agency has made in reducing the backlog of returns and the top problems as well. This includes challenges with processing delays, agency hiring and training, transparency, and a troubled appeals process. TAS is a nonpartisan, independent organization within the IRS that advocates for and supports taxpayers. Its 2023 report contains summaries of the most important issues in the fiscal year 2022 and recommendations for changes to improve the taxpayer experience. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
In a bit of good news for the start of tax season, the IRS is down to less than four million unprocessed returns. That includes around 400,000 individuals, one million businesses, and 1.5 million amended returns. A year ago, the agency still had a backlog of around 11.5 million returns. For taxpayers who still file by paper – approximately 13 million Americans – this means their returns can get processed during tax season. During 2022, the substantial backlog meant that paper returns didn’t get processed for several months.
Currently, the number of suspended returns has increased mostly due to suspected identity theft. Taxpayers whose returns are suspended due to suspected identity theft currently need to wait about a year before the returns are resolved.
Despite that hiccup, the outlook for 2023 is much more promising. More funding has already allowed the IRS to hire more than 4,000 new customer service representatives. More than 700 new employees will staff nationwide Taxpayer Assistance Centers. And the time it takes to hire an onboard new staff has been cut in half. Taxpayers won’t see immediate benefits though, as new staff will need additional training time. As the report noted, “If the IRS assigns more employees to answer the phones, correspondence processing will be slower. If the IRS assigns more employees to process correspondence, phone service will decline.”
Reaching the IRS is still a problem for most taxpayers, the report indicated. Of 173 million calls in 2022, only 13 percent talked to an IRS employee. The average wait time was 29 minutes. Tax professionals didn’t fare much better in their attempts to reach the IRS by phone.
Return and refund processing delays continue to be a major challenge for taxpayers, according to the report. Of those who filed returns by paper, many of the refunds were delayed by at least six months. Additionally, several hundred thousand business returns with refunds for the employee retention tax credit were also delayed.
The IRS also still struggles to correctly process taxpayer notices. In 2022, it sent millions of notices related to math errors on a tax return, reporting errors, authentication, correspondence examinations, and collections. However, if the IRS didn’t process a taxpayer response, the return was either further delayed or the taxpayer got penalized. Even processing responses took an average of about six months.
According to the report, the top ten most serious issues prohibiting a more positive taxpayer experience are:
There are many opportunities to turn these challenges into solutions, the report noted. Initiatives to improve the taxpayer experience include hiring and training more employees, creating online taxpayer accounts, enabling online document uploads, improving the readability of tax transcripts, and giving all taxpayers the option to e-file their returns. Specifically, there are many taxpayers who would prefer to e-file but can’t because the IRS can’t process certain attachments or documents.
At the same time as the Taxpayer Advocate released its annual report, it also published a list of 65 recommendations for Congress to use in improving the overall experience. In the past, Congress has enacted about 50 legislative recommendations, though it’s unclear whether the TAS was the driving force behind the recommendation or other stakeholders.
Among the more notable recommendations, this year are:
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While it seems, the IRS is making headway in resolving many of the identified challenges, it does appear there is still a way to go. The funding set aside in the Inflation Reduction Act should help to resolve these issues. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.