National Taxpayer Advocate: 2021 Tax Year was a Bust

National Taxpayer Advocate Erin Collins on January 12th issued a report stating that 2021 was extremely challenging for taxpayers and preparers alike.

“The year 2021 provided no shortage of taxpayer problems,” Collins said in prepared remarks, adding that “there is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, tax administration did not work for them.”

She added that paper filings contributed mightily to the problem.  

“Paper is the IRS’s kryptonite, and the agency is still buried in it,” she said.

The National Taxpayer Advocate watches over the IRS for taxpayers and makes recommendations to Congress on how to address issues that have been found. Today’s report highlights the following problems with processing tax returns last year:

By statute, the National Taxpayer Advocate is required to identify the ten most serious problems encountered by taxpayers in their dealings with the IRS. This year’s report details the following problems: processing and refund delays; challenges in employee recruitment, hiring, and training; telephone and in-person taxpayer service; transparency and clarity; filing season delays; limitations of online taxpayer accounts; limitations in digital taxpayer communications, including e-mail; e-filing barriers; correspondence audits; and the impact of collection policies on low-income taxpayers. 

The National Taxpayer Advocate report comes on the heels of the IRS announcing that the 2022 tax filing season will begin on January 24th and end on April 18^th for most taxpayers.

The IRS announcement also stressed that paper filings worsened the processing of tax returns in 2021 and urged taxpayers to use electronic filings over paper this filing season.

IRS Commissioner Chuck Rettig:

Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year.

The National Taxpayer Advocate report states that paper returns took roughly eight months to process and in 2021 the IRS received approximately 17 million original Form 1040 series returns on paper.

“Overall, 77 percent of individual taxpayers received refunds in 2021, so processing delays translated directly into refund delays,” the report states.

It also states that “telephone service was the worst it has ever been.”

The IRS received roughly 282 million telephone calls during fiscal year 2021 and answered 32 million of them, meaning 89% of calls went unanswered.

Another noteworthy problem identified in the report is that the IRS’s Where’s My Refund? tool often could not answer the question.

From the report:

The tool does not explain any status delays, the reason for the delay, where the return is in the process, or what needs to be done. It just reflects that the return has been received, that the refund was approved, or that the refund was sent. For millions of taxpayers, that meant many months without any status updates, and some are still waiting for their refunds.

The coronavirus pandemic and under-funding the IRS exacerbated processing problems at the tax agency, according to the National Taxpayer Advocate.

From the report:

As I mentioned earlier, the number of individual income tax returns the IRS receives – a reasonable approximation of its workload – has increased by 19 percent since FY 2010, while its baseline appropriation on an inflation-adjusted basis has decreased by nearly 20 percent. This imbalance has left the IRS without enough resources to meet taxpayer needs, let alone to invest in additional personnel and technology.

The National Taxpayer Advocate recently made 68 legislative recommendations to Congress, which included:

• Provide sufficient funding for the IRS to improve taxpayer service and modernize information technology systems;
• Extend the period for receiving refunds when the IRS postpones the tax filing deadline;
• Authorize the IRS to establish minimum standards for paid tax return preparers;
• Expand the U.S. Tax Court’s jurisdiction to hear refund cases;
• Restructure the Earned Income Tax Credit (EITC) to make it simpler for taxpayers and reduce improper payments;
• Expand the protection of taxpayer rights by strengthening the Low-Income Taxpayer Clinic program.

It is not clear if these recommendations will be followed.