Rettig: IRS Backlog Cleared by Year-End

March 17, 2022

IRS Commissioner Charles Rettig told lawmakers on March 17th that the agency’s processing backlog will be cleared by the end of this year.

“My term ends in November. Absolutely before December,” he told the House Ways and Means Oversight Subcommittee, adding that “barring any unforeseen circumstances...if the world stays as it is today, we will be what we call healthy by the end of calendar year '22 and enter the '23 filing season with normal inventories.”

The pandemic prompted a backlog of roughly 23 million unprocessed tax returns in July of 2020. Since then, the IRS has struggled to process them while keeping up with current filings. The tax agency installed a surge team of 700 experienced auditors to speed-up the processing of returns.

Still, the IRS hiring process has been hampered by the fact that scores of employees have recently left the agency. A Government Accountability Office report found that in the last fiscal year the agency had an attrition rate of 17 %, which is more than double the agency average.

“We're down 17,000 enforcement personnel,” Rettig said.

He attributed the attrition rate to people having better-paying options.

“They have Amazon, they have Wal-Mart... Wal-Mart announced last night they're hiring 50,000 people. Target announced it's onboarding at $20 an hour. Up until the President's recent executive order, we were at $14.57… At those levels, the difference between $15 and $20 is whether or not they're going to have a lunch or a dinner and what it's going to be,” Rettig said.

Recently enacted legislation provides $12.6 billion for the IRS, which is an increase of $675 million above last year’s level and the largest increase since President George W. Bush’s first year in office. But Rettig seemed to suggest that more should have been appropriated.

“Note that it's a $675 million increase over enacted '21, but it's more than $500 million less than what Treasury and OMB requested for the Internal Revenue Service. And of that $600 million, over $300 million is cost of living adjustments. So if you net -- net, it's about a $375 million adjustment for an agency that gets called upon time after time after time for new responsibilities and performs,” he told lawmakers.

Employee Retention Tax Credit:

Subcommittee Member Carol Miller (R-W.VA.) and Committee Member Kevin Hern (R-Okla.) called on Rettig to release payments for the Employee Retention Tax Credit, which expired prematurely last September.

“The ERTC was unfairly cut short for the fourth quarter of 2021, and many of the small businesses and nonprofits are still waiting on relief from the third, the second, and even the first quarter of last year,” Miller said.

Rettig replied that processing delays are due to the agency being unable to automate those payments.

“We do have procedures in place with that, but we did not have the ability to automate our systems,” he said.

Miller asked Rettig to prioritize the ERTC processing, which would include creating a dedicated mailbox, a phone line, and updated timelines as to when taxpayers could expect payments.

Rettig did not answer the question.

The lack of ERTC payments is causing tax problems, according to Hern.

“Companies will be filing their April '22 returns with reduced wages, but they still have not received the checks for the ERTC credit. Ultimately, what this means is taxpayers are paying tax on income they have never received,” he said.

Hern added: “We've even heard shocking instances of companies having to go take out short term loans to pay their quarterly estimates or their liability that's due until they receive their credits from the previous year, from 2021… This might seem like an innocent timing difference to the IRS...but I can assure you that the small businesses are hurting and should not be penalized for doing the right thing.”

Rettig responded that “I do not anticipate people ending up with a penalty.”

Who gets Audited:

Rettig showed very little patience for the recurring complaint by lawmakers that poorer taxpayers are audited more than wealthier individuals.

“I'm tired of having to deal with this issue. We audit high income taxpayers more than any other category in the Internal Revenue Service. Taxpayers reflecting over $10 million of income are audited at a rate exceeding 7%. Taxpayers at the $25,000 level, which is primarily the earned income taxpayer...are audited at 1.1%,” he said.

Rettig also showed little tolerance for the reoccurring argument espoused by Subcommittee Member Tom Rice (R-S.C.), which is that for years the IRS receives funding to retool its computer systems, but nothing ever seems to come from it.

“Since I've been on this committee for six years now, I've consistently heard about the fact that we're using computers that were built in the 1980s. So I'm running COBOL programs that only one person in the IRS knows how to operate…and when that person retires or passes on the IRS is stuck,” Rice said.

He added: “Commissioner, can we work establishing…a credible plan [to retool IRS computers] and how much it'll cost, [and] give us some confidence that it will actually occur?”

Rettig curtly responded: “I'm not Republican, I'm not Democrat…but I am an American. Very proud American, You're all proud Americans. Help us help others.”

The hearing ended without Committee members saying what the next steps would be to address the problems currently plaguing the IRS. 

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