IRS watchdog very worried about this year’s filing season

Internal IRS watchdog, National Taxpayer Advocate Erin M. Collins, said in a report on the 2021 tax filing season that she is “deeply concerned” about this years filing season because of how many problems there were in 2021. 

“There is no way to sugarcoat the year 2021 in tax administration,” Collins wrote in her congressional report released Wednesday. “The year 2021 provided no shortage of taxpayer problems.”

In 2021, she reported that tens of millions of individual returns were delayed and that only 80% of taxpayers received refunds.

The report detailed the IRS’s double duty in 2021, including handling the distribution of 478 million stimulus payments, also known as Economic Impact Payments, amounting to more than $800 billion, as well as more than $93 billion in advance child tax credit payments sent to over 36 million families.

Too much to do, not enough time and personnel

“Budget cuts, an aging workforce, and often complicated hiring processes have left the IRS severely understaffed and unable to adequately recruit, hire, and train much-needed new employees,” the report stated. In addition, inadequately trained employees could give taxpayers “incorrect information, make erroneous determinations, or record inaccurate information in IRS databases.”

As of late December, an audit found the IRS had 6 million unprocessed original individual returns, 2.3 million unprocessed amended individual returns, over 2 million unprocessed employer’s quarterly tax returns, and nearly 5 million pieces of taxpayer correspondence.

“Earned Income Tax Credit (EITC) benefits are worth up to $6,660, Child Tax Credit benefits [were] worth up to $2,000 per qualifying child under tax year 2020 rules, and RRCs are potentially worth several thousand dollars for families who did not receive some or all of their EIPs,” the report stated.

“Millions of taxpayers rely on the benefits from these programs to pay their basic living expenses, and when refunds are substantially delayed, the financial impact can range from mild inconvenience to severe financial hardship,” it added.

Playing catch-up

The expanded child tax credit was not extended to 2022 so far, which could give the IRS some time to catch up on the backlog.

A plan to hire tens of thousands of new IRS agents as part of the Build Back Better act was not signed into law, as some feared it could lead to more aggressive audits by the agency.

But more refund delays are expected this year, and filing mistakes because of the advance child tax credit payments will likely be more frequent on the part of taxpayers who may not understand that they received much of the tax credit during the year rather than as a larger refund.

Tax brackets were adjusted for inflation, and no major tax cuts or increases were enacted during the 2021 legislative year.

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