The Taxpayer Advocate Is Optimistic About The IRS’ Tax Season Readiness

The National Taxpayer Advocate Erin Collins recently released her annual report to Congress, which acknowledged the difficulties taxpayers and tax professionals faced last year. However, the report also highlighted the progress made by the Internal Revenue Service (IRS) in reducing the backlog of unprocessed tax returns and correspondence. In addition, the report suggests several initiatives that the IRS should pursue using the $80 billion in extra funding that it will receive over the next 10 years due to last year’s Inflation Reduction Act.

In 2022, approximately two-thirds of individual taxpayers were entitled to refunds, and the average refund amount was nearly $3,200. However, the National Taxpayer Advocate report found that the IRS failed to meet its responsibility to pay timely refunds to millions of taxpayers for the third year in a row. Nearly 13 million individual taxpayers filed paper returns, but because of paper processing delays, refunds for these taxpayers were delayed, generally by six months or longer. Millions of e-filed individual returns were “suspended” because they fell afoul of IRS processing filters and needed manual review by IRS employees before refunds could be released. Additionally, hundreds of thousands of business returns claiming the Employee Retention Tax Credit were delayed.

Despite these difficulties, the report predicted that the IRS will be starting the 2023 filing season in far better shape than the past two years. The IRS began 2022 with an unprocessed paper backlog of 4.7 million original individual returns, 3.2 million original business returns, and 3.6 million amended returns. By mid-December 2022, the IRS had reduced those backlogs to 1 million original individual returns, 1.5 million original business returns, and 1.5 million amended returns. By December 23rd, the IRS had further reduced its unprocessed paper backlog of original individual returns to about 400,000, and original business returns to about 1 million. This big reduction in paper returns will allow the IRS to start processing paper-filed tax year 2022 returns during the upcoming filing season, in contrast with the previous two years, when the IRS was not able to process current-year returns until months after the filing season had ended.

The report also includes two research studies on ways to restructure the Earned Income Tax Credit to increase participation among eligible taxpayers while decreasing improper payments, and the other study on helping the IRS improve its online operations by looking at those offered by more than 40 states and several foreign countries.

In summary, the National Taxpayer Advocate’s report acknowledges the difficulties that taxpayers and tax professionals faced last year, but it also highlights the progress made by the IRS in reducing the backlog of unprocessed tax returns and correspondence. The report suggests several initiatives that the IRS should pursue using the $80 billion in extra funding it will be receiving over the next 10 years, and highlights the importance of improving customer service and reducing the filing season backlog. The report also includes research studies on ways to restructure the Earned Income Tax Credit and improve the IRS’s online operations.