The Treasury Inspector General for Tax Administration—or TIGTA—has released its audit of the IRS’s 2022 Filing Season. The purpose of the review was to evaluate “whether the IRS timely and accurately processed individual paper and electronically filed tax returns during the 2022 Filing Season.”
It will surprise no one to hear that TIGTA concluded that it was a challenging tax season, and there’s still work to be done.
Returns & Backlog
The IRS opened tax season and began processing 2021 individual tax returns on January 24, 2022. By the end of the filing season, as of May 6, 2022, the IRS had received 143.2 million individual income tax returns (94.7% electronically filed).
The backlog had continued to be a problem, with more than 8.4 million individual tax returns and transactions not processed as of the end of 2021. Paper and amended returns made up the bulk of the carried-over inventory, representing about 7.1 million returns. That compares to 5 million at the end of 2020 and just 293,400 thousand at the end of 2019.
The IRS was also sitting on more than 920,200 pieces of unopened mail.
IRS Solutions
To address the backlog, the IRS hired 9,000 new employees, used more than 2,400 employees from other IRS functional areas (meaning that they were reassigned), and contracted with a third party to provide temporary resources to process tax returns. As of July 1, 2022, the IRS transcribed all individual tax year 2020 paper tax returns into its processing systems, leaving 9.5 million unprocessed tax year 2021 returns.
It’s no secret that technology at IRS is lagging. To address some of these issues, the IRS collaborated with a third-party vendor to develop and test a scanning and digitalization solution to address the backlog of the tax year 2020 tax returns. The goal was to scan a paper tax return prepared using software to convert it to a format suitable for electronic processing.
But before a scanned return can be processed, the scanned image must be validated. That takes time: as of August 20, 2022, the IRS reports that 134,592 tax returns were scanned and required 12,187 hours to validate at an overall rate of approximately 11 documents per hour. Once validated, 95,724 (71%) of the scanned returns were processed, whereas 38,868 tax returns involved potential taxpayer errors requiring review in the Error Resolution function.
Last fall, Treasury announced that the IRS would automate the scanning of millions of individual paper tax returns for filing season 2023—the one happening now—to speed up the issuance of refunds.
Case Management
Taxpayers were not having their cases addressed. The IRS reported that more than 8 million cases remained in the Accounts Management inventory, with more than 7 million remaining as of May 7, 2022. Thankfully, by October 1, 2022, inventory levels were reduced to more than 5 million.
Changes In The Law
Complicating matters, there were a lot of changes in tax laws for 2021. As part of the American Rescue Plan Act of 2021 (ARPA), the Child and Dependent Care Credit, Child Tax Credit, Earned Income Tax Credit, and Premium Tax Credit were modified for the 2021 tax year. There was also a third Recovery Rebate Credit. As of May 5, 2022, taxpayers claimed $266.1 billion in these credits, including $70.7 billion in CTC that was paid in advance (those were the checks qualifying families received for a few months in 2021).
New Automated Tool
TIGTA had previously recommended steps to address the IRS error inventories holistically rather than on a return-by-return basis. In response, the IRS implemented an automated Error Resolution correction tool—FixERS—to shorten the time needed to resolve certain taxpayer errors and reduce the risk of IRS employee errors.
The IRS used the FixERS tool during the 2022 Filing Season to address five common taxpayer errors when claiming the CTC, EITC, CDCC, and RRC. According to the IRS, of the 12.92 million tax returns identified for the FixERS tool as of September 30, 2022, 12.89 million (99.8%) of these returns being resolved. The tool generally resolves a tax return error within three days of being identified and can work more than 250,000 tax returns a day.
Unfortunately, the tool is limited to e-filed tax returns—paper tax returns with the five common errors must still be worked manually. TIGTA estimated that there were 802,748 returns in the Error Resolution inventory as of September 30, 2022, with a CDCC, CTC, EITC, or RRC error that required manual resolution.
Fraud
Fraud continues to be a problem. As of September 24, 2022, the IRS reported that it identified 587,580 tax returns filed with $4.8 billion claimed in fraudulent refunds and prevented the issuance of $4.6 billion (96%) of those refunds. That’s an increase of 29% in fraudulent refunds stopped compared to the same period last filing season.
As part of its efforts to combat fraud, the IRS is using more filters based on characteristics of confirmed identity theft tax returns. Tax returns identified by these filters are held until the IRS can verify the taxpayer’s identity. If the tapayer’s identity cannot be confirmed, the IRS removes the return from processing to prevent the issuance of a fraudulent refund.
As of September 28, 2022, the IRS reported that its identity theft filters identified 4.1 million tax returns with refunds totaling $28.1 billion for additional review. The IRS also confirmed they identified 210,130 tax returns as attempted identity theft, preventing the issuance of $1.6 billion in fraudulent refunds.
Taxpayer Assistance
TIGTA found that IRS still needs to work on providing sufficient access to taxpayers seeking assistance. While the IRS touts online service, website visits were down in 2022 (a trend that has continued in 2023). The IRS reported 896 million visits to IRS.gov as of October 1, 2022, compared to 1.8 billion visits as of October 1, 2021.
The IRS still needs to pick up the phone: As of September 24, 2022, taxpayers made 148.9 million total attempts and 118.6 million net attempts to contact the IRS by calling the various customer service toll-free telephone assistance lines. The IRS reports that 29 million calls were answered with automation, and telephone assistors answered 8.8 million calls. That works out to a 14% level of service—down from 2021. The average speed of answer was 31 minutes, longer than in 2020.
Those seeking in-person assistance fared just as poorly. Each year, over a million taxpayers seek help from one of the IRS’s 360 walk-in offices, or TACs. The IRS planned to assist 2.7 million taxpayers at its TACs in 2022, but as of September 26, 2022, nearly 10%—32 of the 360 TACs—were closed due to a lack of staffing. Even those with staff may be understaffed: 189 of the 360 TACs operated by the IRS are staffed with one or two IRS employees.
What’s Next
The IRS is hoping that things will get better. For the 2023 filing season, the IRS planned to triple the number of taxpayers served at in-person support centers to more than 2.7 million; raise the proportion of callers reaching an employee to 85% while cutting average wait times in half, to less than 15 minutes; hire 5,000 customer service representatives to enhance its telephone operations; and allow taxpayers to receive and respond to notices online.
TIGTA will continue to monitor the IRS’ progress to see if they have met these goals.
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