IRS struggles to fill jobs, deal with backlog through difficult tax season

The Internal Revenue Service is having a hard time hiring enough staff to help it get through this year’s extended tax season and overcome its backlog of unprocessed tax returns.

A new report from the Treasury Inspector General for Tax Administration, released Friday, provided interim results on the 2021 tax-filing season. The report revealed that more than 8.3 million individual tax returns and transactions remained to be processed as of the end of 2020. That represents more than a 1,200% increase in the number of paper tax returns filed for tax season that have been carried over from the prior year compared to a normal year.

Of course, this has been far from a normal year, as the IRS has faced plenty of challenges since the COVID-19 pandemic spread across the country during tax season last year. IRS employees needed to vacate the offices and work remotely and didn’t start returning to their offices for months. In the meantime, millions of pieces of unopened mail piled up in trailers parked outside IRS facilities, and the IRS has been trying ever since then to catch up with all the new mail that’s been pouring into its offices. Staff shortages, despite funding increases in recent years to help the IRS comply with the Taxpayer First Act, the Tax Cuts and Jobs Act, the CARES Act and other coronavirus relief packages, have made the challenge more difficult.

Andrew Harrer/Bloomberg

“As of March 5, 2021, the IRS had 4,434 Submission Processing function positions that remain unfilled or for which employees are not working for various reasons,” said the report. “In addition, continued closures related to COVID-19 and limited service from the Federal Records Center impact tax record storage and retrieval. As of March 1, 2021, IRS management stated that they have more than 31,000 boxes (approximately 4.7 million documents) that need to be refiled or retired to a Federal Records Center location. As of March 1, 2021, the IRS estimated there were approximately 70,000 tax return requests that need to be fulfilled.”

On Friday, the IRS updated its web page on IRS operations during COVID-19, and acknowledged that it had 17.1 million unprocessed individual tax returns in the pipeline as of April 30. Also as of that date, the agency had 1 million individual tax returns received prior to 2021 in the processing pipeline. The unprocessed returns include those requiring correction to the Recovery Rebate Credit amount or validation of 2019 income used to determine the Earned Income Tax Credit and the Additional Child Tax Credit. “This work does not require us to correspond with taxpayers but does require special handling by an IRS employee so, in these instances, it is taking the IRS more than 21 days to issue any related refund,” said the IRS. “If, as a result, a correction is made to any RRC, EITC or ACTC claimed on the return, the IRS will send taxpayers an explanation.”

This year, according to the TIGTA report, the IRS expects to receive approximately 160.9 million individual income tax returns (including 14.4 million filed via paper and 146.6 million electronically filed). As of March 5, the IRS had received approximately 55.7 million tax returns, of which more than 53.9 million (96.8 percent) were electronically filed. Tax refunds totaling approximately $107.8 billion have been issued. Also as of March 5, more than 1.7 million Free File returns were received, representing a 0.2 percent increase as of the same period last year.

Adding to the challenges, the IRS has needed to adjust its work because of recent COVID-19 relief legislation like the American Rescue Plan Act. On March 31, the IRS announced that it will take steps in the spring and summer to systemically provide individuals who have already filed their 2020 return with the unemployment relief included in the stimulus package. As of March 4,, state and local agencies had reported unemployment benefits totaling over $104 billion for 8.9 million individuals.

IRS phone lines have been overwhelmed this tax season, and the agency doesn’t have enough staff to handle all the calls. As of March 5, taxpayers made close to 46.3 million attempts to contact the IRS by calling the various customer service toll-free phone lines. The IRS reported to TIGTA that it answered approximately 7.6 million calls with automation. IRS customer service workers answered more than 4.4 million calls and provided a 27.3 percent level of service to callers taking an average of 18 minutes to answer calls. By some estimates, the level of phone service is much lower.

“You hear from taxpayers and congressional offices all the time, but my understanding is that there have been days where if you calculated by looking at the number of calls that were answered and divide it by the number of calls that came in, the level of service was 2 to 3 percent,” said Nina Olson, executive director of the Center for Taxpayer Rights and the former National Taxpayer Advocate, during a webinar last month hosted by the Urban-Brookings Tax Policy Center (see story). “Even by the IRS’s own calculation, where it does the number of calls that are answered, divided by the number of calls that aren’t routed automatically, it’s at 15 percent. With all the attention on enforcement, you can’t have that level of customer service and think that in any way, you’re having a successful filing season.”