IRS Battling Backlogs Caused by Pandemic Relief Payments, Staff Shortage

Internal Revenue Service (IRS) headquarters building in Washington on March 8, 2018. Samira Bouaou/The Epoch Times

The tax season of 2022 has been quite chaotic for the Internal Revenue Service due the significant challenges, including staffing shortages and backlogs of tax returns.

Because of the pandemic, the IRS faced an unprecedented amount of work during the 2021 filing season. The agency started this year with a backlog of more than 8.4 million unprocessed individual tax returns and transactions, according to a preliminary report by the Treasury Inspector General for Tax Administration.

The backlog of individual tax returns was about 13 times more than the inventory experienced before the pandemic, according to the report.

In addition, the accounts management function of the IRS, which is tasked with assisting taxpayers with inquiries, reported more than 8 million pending cases at the end of last year.

The agency continues to process millions of tax returns from earlier years in addition to the millions received during the current filing season.

IRS Commissioner Charles Rettig recently testified before the Senate that the agency took steps to reduce the backlog by the end of 2022 and start the 2023 filing season with a “healthy level” of inventories.

Every year, around 10 percent of Americans file their tax returns by paper. Processing paper returns cause delays and increases the IRS’s workload significantly, tax experts say.

“Paper is the IRS’s Kryptonite,” according to Erin Collins, the national taxpayer advocate who heads an independent organization within the IRS.

The agency “is still buried in it,” she said in her testimony before the Senate Finance Committee in February. “There is no doubt that paper processing remains the agency’s biggest challenge, and that will continue throughout 2022.”

The backlog at the IRS, however, is not a new issue.

The current chaos is largely due to a long-standing trend in fiscal policy, according to the Tax Foundation, a tax policy think tank.

“For the past few decades, policymakers have increasingly relied on the tax code to deliver major social spending initiatives,” the think tank’s recent report stated.

In addition to collecting taxes, the IRS has been given the responsibility of administering social benefits. The IRS’s capacity, however, has not grown fast enough to meet these new tasks, according to the report. The political desire to increase its budget also weakened.

And the pandemic has compounded the problems. The agency was heavily used to disperse pandemic aid in three major rounds of relief legislation, including the $1.9 trillion American Rescue Plan enacted in March 2021.

The IRS was in charge of distributing the majority of the funds, including the stimulus payments and the monthly child tax credit, to eligible families.

In the first two weeks after Biden signed the stimulus bill in March 2021, for example, the IRS processed 127 million payments worth nearly $325 billion.

The agency received additional funding to manage the relief payments, but the programs far exceeded the IRS’s capacity. In addition, the agency received a record 282 million telephone calls in 2021. According to Collins, only around 32 million, or 11 percent, of those calls were answered by IRS customer service agents.

“In the long term, the most stable solution is to move social spending out of the tax code and let the IRS focus its resources on revenue collection,” the Tax Foundation recommended.

The agency plans to hire an additional 10,000 personnel to solve backlog issues. Rettig stated that 5,000 would be employed in the next several months and additional 5,000 would be hired over the next year.

However, the tight labor market makes it harder to attract and retain talent for the IRS, as well.

“Due to the challenges of hiring during the pandemic and competition from other employers for the same talent, this environment is an exceptionally difficult one for hiring,” Rettig said.

The Great Resignation, which has harmed businesses across all industries, has also affected the IRS.

Many workers retired or left their jobs last year due to the COVID. More than 5,000 workers are also expected to retire this year. In addition, roughly a quarter of the workforce is approaching retirement age.

It has grown more challenging for the IRS to retain staff, especially those in tech roles, according to Tax Foundation’s Garrett Watson.

There’s already a very small group of computer engineers and IT specialists who understand the language and how to use the software at the IRS, Watson told The Epoch Times.

This makes it more difficult, he noted, to lure these individuals away from the private sector that provides a better salary.

Additionally, a lack of personnel hinders the IRS’s auditing capabilities.

“We can no longer audit a respectable percentage of large corporations,” Rettig said in his testimony.

“These corporations can afford to spend large amounts on legal counsel, drag out proceedings, and bury the government in paper. We are, quite simply, ‘outgunned’ in our efforts to assure a high degree of compliance for these taxpayers.”