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IRS watchdog: Millions had major problems getting tax refunds, stimulus payments

The IRS “generally performed well” carrying out last year’s tax-filing season and issuing the first round of coronavirus stimulus payments, but millions of taxpayers encountered significant problems, according to a report issued Wednesday by the agency's in-house watchdog.

“Despite the IRS’s overall success in managing the filing season and accurately paying the significant majority of [economic impact payments], some taxpayers experienced major problems, and the agency was not always fully transparent about its struggles,” National Taxpayer Advocate Erin Collins wrote in the annual report her office submits to Congress.

The COVID-19 pandemic led the IRS last spring — during the middle of the filing season — to temporarily close mail facilities, call centers and taxpayer assistance centers. Around the same time, the IRS was tasked with issuing relief payments of up to $1,200 per adult and $500 per child that were authorized by the CARES Act.

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Collins said in her report that the IRS did a good job handling the tasks it could automate. In cases where taxpayers filed their returns electronically last year, the IRS was able to process the vast majority of the returns quickly and issue refunds promptly. Additionally, most taxpayers quickly received the correct stimulus payment amount, she said.

However, Collins said there were several areas where taxpayers had major difficulties in 2020, including millions experiencing lengthy delays in getting their refunds.

In some cases, this is because the IRS has struggled to process the roughly 16 million tax returns it received in the mail due to the pandemic. Collins noted that the IRS said on its website that there were still about 7 million unprocessed individual returns as of Nov. 24. In other cases, refunds were delayed because returns triggered the IRS’s fraud-detection filters, which for many years have had high false-positive rates.

Collins also said that millions of people have not received some or all of the stimulus payments for which they are eligible. She said that the IRS fixed some problems relating to the payments throughout the year, but that the agency’s focus on issues that could be fixed through automation “left taxpayers frustrated and without the funds some of them desperately needed.”

Congress in December passed legislation that authorized a second round of payments of up to $600 per adult and per child. Collins said that she’s “optimistic the lessons learned from the first round will make the process go more smoothly in 2021, and to the extent there are any inconsistencies or errors, taxpayers will be able to address them with the filing of their 2020 income tax returns rather than waiting for the IRS to correct erroneous payment amounts.”

She pressed for more funding for the IRS, saying that its budget has been reduced by about 20 percent since fiscal 2010 after adjusting for inflation, and that in fiscal 2020, employees only answered about 24 percent of the roughly 100 million telephone calls to the agency.

“If this year’s Most Serious Problems are read in combination, one overriding theme emerges: To improve taxpayer service, the IRS needs more resources to hire employees and more resources to modernize its information technology systems,” Collins wrote.