IRS funding boost sets high hopes for smoother tax filing season
Expectations for a smooth tax filing season are high after two chaotic cycles brought on by the coronavirus pandemic, which resulted in huge backlogs of tax returns and unanswered calls.
That optimism was boosted by $80 billion in funding for the agency passed by Democrats as part of the Inflation Reduction Act last year.
Anticipating those high hopes, Treasury officials told reporters Friday that the IRS had hired 5,000 new customer service reps and will have them trained by late February to answer calls during the 2023 tax filing season that officially opened on Monday and closes on April 18.
“The IRS answered too small a share of the total number of calls they received last year,” Deputy Treasury Secretary Wally Adeyemo said in a statement released Monday. “These 5,000 new hires will … help address the continued elevation of call volumes we’ve experienced over the past two years.”
Millions of taxpayers are still waiting on their federal refunds. They say the money will make a difference in their lives.
“I did not get my federal tax return last year,” New York City resident Hal, who did not want to provide his last name, told The Hill. “It would have been a couple hundred bucks, and I could use it, too. I got laid off from this one job in September, and I’m just starting up with a new gig in a couple of days, actually.”
Treasury officials also said Monday that the IRS had hired around 650 additional personnel to provide in-person support at taxpayer assistance centers. There are 361 such centers around the country that give people free help when filing their taxes.
“When it comes to customer service, our goal is to ensure that taxpayers can get their questions answered by the IRS as quickly as possible. Last fall, [Treasury] Secretary [Janet] Yellen set out a goal of an 85 percent level of service,” Adeyemo added.
Eighty-five percent of calls answered would be a resounding improvement over last year’s performance, which fell as low as 10 percent with only 7.5 million calls picked up out of 73 million calls placed, according to the National Taxpayer Advocate (NTA), an office within the IRS.
The year before was even worse, with only 9 percent of calls answered during filing season. Hold times for taxpayers who called the IRS with questions jumped from an average of 20 minutes in 2021 to 29 minutes in 2022. Treasury officials said Friday they want to cut this number down to 15 minutes in 2023.
The IRS’s backlog of unprocessed tax returns, which still numbers in the tens of millions, was roughly as bad in 2022 as it was in 2021, prompting NTA chief Erin Collins to write in November that “numerically the IRS is in about the same place that it was around the same time last year.”
According to the NTA’s end-of-year report to Congress, there were 15.1 million pieces of IRS inventory that required manual processing as of Dec. 9, 2022. That’s an improvement over the 22.3 million reported the year prior.
“For the third year in a row, the IRS failed to meet its responsibility to pay timely refunds to millions of taxpayers,” Collins wrote in her annual report.
More than half of the $80 billion funding boost for the IRS passed by Democrats will go to enforcement activities like audits, which officials say will make up the lion’s share of the $428 billion in taxes that the government is owed every year but isn’t able to collect. This amount is known as the “tax gap.”
But tax experts say not to expect a whirlwind of new audits or a windfall of new government revenues this year. That’s because the majority of the tax gap comes from business incomes, both from corporations and pass-through entities owned by individuals, and it takes time to hire and train the new IRS employees who will be tasked with performing these more complex audits.
“Some of the changes coming from the new funding can be implemented right away, some of the taxpayer service stuff — they can hire more people to answer the phone. That’s really easy,” Howard Gleckman, an analyst with the Urban-Brookings Tax Policy Center, said in an interview.
“But when you’re auditing complicated partnership returns or complicated corporate returns, it takes a long time to hire and train the auditors to do that work.”
“You can’t just hire these people off the street. You probably have to go and find people who’ve worked on the corporate side or worked at accounting firms, and you’ve got to get them to go to work for you,” Gleckman said.
The Treasury Department also said Monday that the IRS is scaling up its paper-scanning capacity, which lags far behind the private sector. Paper returns are often referred to as the agency’s Achilles’ heel, slowing it down way more than electronically filed returns.
With the expiration of the expanded child tax credit and other pandemic-related changes to the tax code, the IRS is telling taxpayers to expect a smaller refund for 2023 than in previous years.
“Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year,” the IRS said in a statement released Monday.
“Taxpayers who electronically file a tax return with no issues and choose direct deposit should still receive their refund within 21 days of the date they file — similar to previous years,” the agency added.
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