IRS Faces Challenges: Delayed Refunds, Misleading Measures, and Unchecked Claims

Internal Revenue Service (IRS)

WASHINGTON, D.C. — In her recent mid-year report to Congress, National Taxpayer Advocate Erin M. Collins revealed a tale that is both encouraging and troubling about the current state of the Internal Revenue Service (IRS).

While the tax filing season ran generally smoothly for most people, the IRS faces significant challenges that could erode public confidence in the agency, including delaying refunds to victims of identity theft, perpetuating misleading telephone metrics and prolonging the processing of Employee Retention Credit claims.

Collins underlined the urgency of the situation for identity theft victims. She articulated her serious concerns about the dramatic increase in processing time, from 19 months in 2023 to a staggering 22 months by April 2024. In direct violation of the Taxpayer Bill of Rights, which guarantees quality service, the IRS’s processing time has put undue strain on taxpayers, particularly those earning below 250% of the Federal Poverty Level. Collins called on the IRS to address this issue swiftly.

The report also unveiled issues in the IRS’s customer service department, particularly in the Accounts Management (AM) Customer Service Representative Level of Service (LOS). With the AM LOS measure misguidedly prioritized, resources were incorrectly allocated resulting in a neglect of important tasks such as processing paperwork and resolving identity theft cases.

Though the IRS showcased an impressive 88% LOS, only 31% of all taxpayer calls were answered, creating an inaccurate representation of the agency’s service. With about 3/4 of the calls routed to non-AM phone lines or automated responses, millions of taxpayers seeking crucial assistance were left waiting.

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Collins criticized the IRS for overstaffing its AM lines. With employees spending roughly a third of their time waiting for calls, Collins argued that these hours represented missed opportunities to process taxpayers’ paperwork and attend to identity theft victims’ cases. She urged the IRS to reduce its reliance on the AM LOS system, emphasizing the importance of problem resolution over simple call answering.

The processing delay of Employee Retention Credit (ERC) claims is yet another unsettling issue plaguing the IRS. With a backlog of approximately 1.4 million claims, the IRS has imposed a moratorium on processing new claims due to concerns about non-qualifying claims. Collins openly acknowledged the IRS’s dilemma, warning that the agency risks damaging the very businesses it aims to support through excessive delays or improper payments.

The report also sheds light on the IRS’s Strategic Operating Plan for utilizing the funding it received under the Inflation Reduction Act (IRA). Most of the allocated funds have been dedicated to enforcement, leaving a relatively small portion for improving taxpayer services and modernizing business systems. Predicted to be exhausted by 2026, Collins urged Congress to reallocate funds to these underfunded areas.

In envisioning a future IRS, Collins noted that truly transformative changes would come from the deployment of new technology and innovative thinking. The report highlights the need for modernizing systems, replacing outdated technology, and enhancing online services for taxpayers.

As the IRS grapples with these challenges, the report underscores Collins’s advocacy for improved transparency, enhanced hiring strategies, and increased efficiency in processing. The IRS has responded positively to the report, agreeing to implement 79% of the recommended administrative changes.

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While the report reveals significant obstacles, it also points the way toward meaningful reforms that can improve the tax experience for millions of Americans.

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