“2023 has been an extraordinary transitional year for the IRS and thus for taxpayers,” she wrote. “Despair has turned into cautious optimism.”
This annual dive into the inner workings of the IRS comes just as it announced that the 2024 tax season will begin on January 29. The agency expects more than 128.7 million individual tax returns to be filed by the April 15 deadline.
The Inflation Control Act pumped much-needed money — $80 billion — into the IRS to hire and modernize employees.
Collins identified delays in processing identity theft victims as one of the biggest challenges facing the agency. On average, it took the IRS 19 months to resolve self-reported identity theft cases and issue refunds — a response time Collins called “unreasonable.”
“Many taxpayers depend on their tax refunds to cover their living expenses, especially low-income taxpayers,” she wrote in her report.
When a taxpayer notifies the IRS that they have been a victim of identity theft, the case is handled in the Identity Theft Victim Assistance Unit. But many filers don’t realize they’ve been victimized until they try to file their tax returns electronically. The IRS finished the year with about 484,000 cases of identity theft.
In addition to actual identity theft victims, each year the IRS flags millions of returns it suspects to be fraudulent. The problem is that many of these returns may be legitimate, but filers only receive one letter asking them to verify their identity, Collins said.
If people move, the notification is never opened, or it is lost, returns and refunds will not be processed. In 2022, the IRS suspended the processing of 4.8 million tax returns and required taxpayers to verify their identities before releasing refunds. More than 2.5 million returns remained pending as of December 2022, because taxpayers had not yet authenticated their identities.
One reason for the backlog was the prioritization of telephone service over paper processing. Collins noted that IRS employees in the accounting management function have turnover. They have to answer phones and handle paperwork, such as amended tax returns, taxpayer correspondence, and some identity theft cases.
If workers prioritize phones, paper processing will suffer. If they prioritize the latter, taxpayer assistance by phone would be affected.
“It goes back to the whack-a-mole theory,” Collins said. “In order to answer more phone calls and help more taxpayers, they are shifting their resources to answering the phones. But by doing so, they have created a deficit or problem in the identity theft group.
For the 2024 tax season, Collins urged the IRS to make resolving the identity theft backlog a higher priority. If the agency reassigns identity theft employees to work the phone lines in the 2024 filing season, it will likely exacerbate an already untenable situation.
“It has now been more than three years since the beginning of the pandemic,” Collins wrote in her report. “The IRS must be able to figure out how to provide taxpayers with the customer service they need without taking it away from other important programs.”
Below are some additional errors.
Processing times: The IRS had a backlog of over 6 1 million pieces of correspondence and amended tax returns as of October 28.
Recruitment delay: The number of IRS employees has fallen in the past decade to levels not seen since the 1970s. Inadequate staffing has resulted in low quality of service to taxpayers.
Long delays could worsen if the agency is unable to increase staffing. Collins reported that 18% of current IRS employees are eligible for retirement, with estimates of 37% over the next five years.
Contact a real person: The IRS answered only 34 percent of calls from people trying to get an appointment at the Taxpayer Assistance Center.
However, we should not ignore the agency’s victories.
“We appreciate taxpayer advocates’ recognition that the IRS made improvements in 2023, and we are committed to continuing this momentum through the 2024 tax season and beyond,” IRS Commissioner Danny Werfel said in a statement.
The agency has begun implementing scanning technology so that employees do not have to manually copy paper returns. A new tool has been introduced that now allows most taxpayers to submit documents electronically instead of having to mail in paperwork.
The IRS responded to a higher rate of taxpayer calls (although still not high enough). During fiscal year 2021, IRS employees answered only 11 percent of its calls. In 2023, IRS employees answered 29 percent of its calls — an increase of more than 150 percent from the previous year. Average wait times on toll-free lines have been reduced.
“I think the good news is that there are fewer moles that we have to eliminate,” Collins said. “The IRS has been kind of moving things along. Overall, there’s been a lot more good things that happened during 2023 than bad things that happened in 2023.”