IRS watcher sees ‘light at the end of the tunnel’ on massive backlog, just in time for tax season 2023

The Internal Revenue Service (IRS) began last year’s tax season with 11.5 million unprocessed returns—a backlog that kept growing, causing “unprecedented financial difficulties” for 23 million Americans by May 2022. But with Tax Day now looming again, the country’s National Taxpayer Advocate, Erin Collins, has struck a guardedly optimistic tone in her annual report to Congress.

Released on Wednesday, the 289-page document reveals that the IRS has managed to winnow down that backlog to a mere 4 million outstanding returns by 2022’s end. That should translate into shorter delays for 2023 refunds, though her report still pleads with taxpayers to please e-file, if they can, to minimize their wait. It also makes no fewer than 65 recommendations for ways that Congress can reform the IRS, and identifies at great length the major problems that taxpayers say they encounter when dealing with the agency.

“We have begun to see light at the end of the tunnel,” Collins summarizes in the introduction, before adding: “I am just not sure how much further we need to travel before we see sunlight.” The report blasts the IRS’s outdated system used to process returns, as well as its nerves-testing customer service, which nose-dived after operations quit during the pandemic, and apparently still hasn’t recovered.

The report says that taxpayers waited more than six months on average for an official response, double the pre-pandemic wait time. Also, 8% of returns are still filed on paper, despite them costing 25 times more to process than e-filed forms. E-filing is the preferred method nowadays, though the IRS reportedly set a goal to go paperless in the early 2000s. And thanks to the agency being understaffed and under-resourced, the report adds that even taxpayers who e-filed in 2022 endured uncommonly long waits.

Several pages are also spent documenting the “needless effort and cost” to e-file. One “challenge” is that many taxpayers do attempt to e-file but find they’re “unexpectedly blocked from doing so.” Often, that’s because they’ve managed to inadvertently trigger one of the digital safeguards put in place to prevent fraud and identity theft. According to the report, 21 million Americans had their 2022 returns rejected. About a third of them endured “more than one rejection in attempting to e-file their return,” and only half were able “to rectify the issues and successfully e-file.”

This past June, photos surfaced of mounds upon mounds of unprocessed returns—probably a comical sight, if not for the failure they telegraphed to U.S. taxpayers. It drove Natasha Sarin, a Treasury Department tax policy counselor, to explain that, thanks to the IRS’s antiquated system, here these returns shall remain until employees find time to manually keystroke the forms’ figures into the agency’s database, one line at a time. “Investing in the IRS [is] essential to overhaul this manual system,” Sarin tweeted, so the agency can serve taxpayers the “way they deserve.”

The Treasury Department says the IRS already spent the money earmarked in the Inflation Reduction Act to hire 5,000 more customer-service reps; they’re reportedly set to start answering taxpayer phone calls soon. But on Wednesday, it told the New York Times this still isn’t enough.

Of course, all of this comes days after Republican lawmakers—who’ve retaken the House—voted to eliminate $71 billion worth of IRS funding, including the money to hire more IRS workers in the coming years.

For this cut to go anywhere, the Democratic-controlled Senate would have to pass it, but it has already highlighted the GOP-led House’s priorities, as members made clear within hours of arriving in Washington, D.C., this week. “I’m about to cast my vote for our very first bill this Congress,” Representative Lauren Boebert said in a video she tweeted out on Monday. “It’ll help stop the harassment of the American citizens by prohibiting those 87,000 IRS agents from ever even being hired. That’s conservative governance at its finest—more freedom, less government, and we are just getting started.”