The IRS is gearing up for another tax season amid a host of challenges, according to a new report. Most pressing is the need to update “outdated” systems and hire more workers to provide better service, an IRS watchdog found. Still, the agency’s leadership also faces another test: fending off the latest attacks from Republican lawmakers, some of whom are pushing to abolish it entirely.
In the meantime, the main concern for taxpayers, as before, will be getting their refunds on time and getting to a person at the IRS when they need help. And it can also prove difficult after three years delays caused by the pandemic and failures, according to National Taxpayer Advocate Erin Collins, who this week released the annual the report to Congress.
“For the past three years, we have experienced a period of ‘All COVID-19, All the time’ in the tax administration, as well as in our personal lives, communities and work,” she wrote. “These issues continued to have a significant impact on taxpayers throughout 2022 and will continue into 2023.”
Is “sunshine” ahead?
But there is good news, Collins said. First, the IRS will begin the current tax season with a smaller backlog than a year ago, although with 10 million unprocessed returns, the agency still has a lot of catching up to do, its report said.
“We are beginning to see the light at the end of the tunnel,” Collins wrote in the report. “I’m just not sure how much longer we have to go before we see the sunlight.”
Taxpayers can expect some relief as the Inflation Reduction Act (IRA) last year provided $80 billion in new funding for the IRS to upgrade technology and hire more workers, as well as strengthen tax fraud enforcement. The idea is to make the IRS work better, while also sniffing out new revenue from wealthy taxpayers who evade tax laws.
In an email, the IRS said it “will carefully review the annual report to Congress.”
It added: “While there is still much work to be done, the IRS is poised to deliver a better 2023 tax season for the nation with more services for taxpayers, aided by critically needed new resources provided by the Inflation Reduction Act.”
But that funding is now the goal of GOP lawmakers, and this week, House Republicans vote to repeal $72 billion of the $80 billion allocated by the IRS under IRAs.
On Tuesday, Representative Earl L. “Buddy” Carter, R-Georgia, introduced the Fair Taxation Act, which would eliminate the federal personal and corporate income tax, the estate tax and the payroll tax — the latter of which funds both Social Security and Medicare. provision. Under his bill, those taxes would be replaced with a national consumption tax of 30% that would apply to all consumer purchases — health care, groceries, homes, gasoline and more.
And because much of the Internal Revenue Code would be dismantled, the bill would also abolish the IRS.
Certainly, both bills have little hope of moving forward given the Democrats’ control of the Senate. But the effort points to long-term political difficulties facing the IRS, which could have larger implications for the agency if Republicans later win control of Congress.
Some Republican lawmakers continue to repeat the claim that the $80 billion in new IRS funding will be used “to hire 87,000 new agents to fight against working families,” such as Congressman Jason Smith, a Missouri Republican who was elected this week to chair the influential This was announced by the Committee of the House of Representatives on January 9 statement.
These claims were rejected by experts as misleading because much of the new IRS funding will go toward hiring customer service agents and tax workers who can help answer questions and speed up the agency’s processing of refunds. New auditors will also be hired, but the Biden administration has said they will mostly focus on people making $400,000 or more, not middle- or working-class Americans.
Meanwhile, the IRS faces very real challenges, albeit mostly internal ones. The issues highlighted by the National Taxpayer Advocate address daily headaches that taxpayers now face, such as delayed refunds, calls to the IRS that go unanswered and a website that is confusing and difficult to use.
Top 10 IRS Problems
In a new report, the National Taxpayer Advocate has outlined the 10 biggest problems at the IRS, all of which can affect taxpayers on a daily basis.
At the top of the list are processing delays, with millions of taxpayers seeing their returns in limbo. In some cases, delays occurred because the agency could not keep up with paper returns that had to be manually entered into computers. Meanwhile, people who were victims of identity theft had a typical delay of a full year to receive compensation, Collins wrote.
Those delays have led to “widespread taxpayer frustration and financial hardship for both individuals and businesses for millions of taxpayers,” she said.
Still, Collins said the $80 billion in IRA funding could help the agency upgrade its technology and reduce processing times. For example, the bill directs $4.8 billion to upgrade the agency’s IT systems, which could be used to purchase scanning technology so paper appeals don’t have to be manually entered.
Here are the top 10 issues outlined in the Collins report:
- Delays in processing tax returns.
- Complexity of the tax code: Collins said the byzantine laws create an “expensive and time-consuming” process for taxpayers.
- IRS Hiring and Training: The IRS budget has been cut by 15% over the past decade, leading to staffing levels last seen in the 1970s and declining service quality.
- Telephone and in-person service: Only 1 in 10 calls reached an IRS agent in FY2021.
- Online access for taxpayers and tax professionals: Collins said the IRS website lacks functionality.
- E-File vs. Free File: The report notes that not all IRS forms are e-filing compatible, meaning some taxpayers are forced to file their returns on paper, resulting in processing delays.
- IRS transparency: Collins blasts the IRS for failing to provide taxpayers with basic information, such as why their refunds were delayed.
- Oversight of return preparers: The report notes that taxpayers are often harmed by unaccredited return preparers.
- Appeals: Taxpayers who want the IRS Independent Appeals Service to review their case wait an average of a year.
- Foreign Taxpayers: Americans living abroad face a number of barriers to filing taxes, such as barriers to filing taxes by email.
“While there is still much work ahead, the IRS is poised to deliver the nation’s best tax season in 2023 — with more services for taxpayers, as well as critically needed new resources provided by the Inflation Reduction Act,” the IRS told CBS MoneyWatch in an email.
Simplification of the Tax Code?
One thing Collins and lawmakers who oppose the IRS agree on is that the nation’s tax code is too complex. Its complexity is one reason Rep. Carter argues that a flat consumption tax would benefit Americans by simply relaxing the tax code. He also claims that a single tax will “stimulate growth and innovation”.
However, tax experts have long noted that sales taxes to eat the incomes of the poor and working class are much higher than those of the rich because lower-income households spend more of their earnings on goods and services. The rich, meanwhile, spend a smaller share of their income, making it easier for them to put money into savings and investments.
There may be other hidden costs, respectively to the left Institute of Taxation and Economic Policy. For example, a consumption tax would eliminate the tax benefits that many Americans get when they buy health insurance in the Affordable Care Act marketplaces. They will also face a new tax of 30% on insurance premiums, the report said.
Republicans are “preparing to vote on the so-called Fair Tax Act, which would eliminate the federal income tax and instead force everyone to pay a flat 30% sales tax,” noted Frank Clemente, executive director of the tax group Americans for Taxes. Justice, told CBS MoneyWatch. “So billionaires will pay the same share of taxes as working families.”