Taxpayer Advocate Report Highlights Top 10 Taxpayer Problems

January 12, 2023

A new report by the IRS Taxpayer Advocate says processing delays are the "Most Serious Problem #1"  faced by taxpayers during 2022. From the report's Executive Summary:

In 2020, the IRS quickly fell behind in processing paper-filed tax returns, resulting in tremendous backlogs of unprocessed paper. Even though the IRS tried to clear its paper backlogs through additional hiring, mandatory overtime for staff, and “surge teams” of employees reassigned from other IRS business units, IRS processing delays and paper backlogs continue to be a Most Serious Problem for taxpayers.

The full list of the top 10 problems encountered by taxpayers: 

  1. Processing delays
  2. Complexity of the tax code.
  3. IRS Hiring and Training
  4. Telephone and In-person Service
  5. Online access for taxpayers and tax professionals 
  6. E-file and Free File ("E-Filing Barriers and the Absence of a Free, Easy-to-Use Tax Software Option Cause Millions of Taxpayers to Continue to File Paper Tax Returns").
  7. IRS transparency
  8. Return preparer oversight (Taxpayers Are Harmed by the Absence of Minimum Competency Standards for Return Preparers).
  9. Appeals ("Staffing Challenges and Institutional Culture Remain Barriers to Quality Taxpayer Service Within the IRS Independent Office of Appeal")
  10. Overseas taxpayers ("Taxpayers Outside of the United States Face Significant Barriers to Meeting Their U.S. Tax Obligations") (Related: Eide Bailly Foreign Trust and Estate Compliance).

These are all important issues facing taxpayers. My only disagreement is with the framing of the return preparer item, #8. 

As I see it, the problem is not a lack of regulation. It's a lack of preparers.

Until the artificial intelligence bots get up to speed on the tax law, tax prep will require humans. Tax prep firms are plagued by a lack of potential new hires. Many experienced preparers are aging out, especially in rural areas, without replacements to take over their work. Burnout from tax season overtime pushes others out of the field. The result is higher prices for taxpayers, more self-prepared returns, more errors, and, on the margins, taxpayers dropping out of the system.

Preparer regulation almost by definition reduces the population of preparers. It won't necessarily increase the skills of those remaining, as anybody who has taken on-line continuing education can attest. The likely unintended consequences are increased taxpayer cost and reduced compliance. 

Rather than saddling preparers with compliance paperwork, I wish the Taxpayer Advocate would push for steps to increase the supply of preparers. These might include:

- A rollback of individual return due dates to October 15, and of partnership and S corporation dates to September 15. This would ease the seasonal stress of the current April 15 deadline, which has been in place for nearly 70 years. It would also eliminate the stressful make-work of filing extensions.

  - Reconsidering the current 150-hour education requirement for CPA candidates. Requiring the extra college time, with the associated extra costs and lost earnings, makes it easier to choose a non-accounting major.

These steps could help keep people in the businesses and widen the pipeline for new preparers. Of course, fixing problem #2, tax code complexity, would help the most. 

These views are not necessarily the views of Eide Bailly, or anyone else for that matter.

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