On Wednesday, January 12, 2022, I released the National Taxpayer Advocate’s 2021 Annual Report to Congress and the fifth edition of the National Taxpayer Advocate’s Purple Book, which presents legislative recommendations designed to strengthen taxpayer rights and improve tax administration for all taxpayers.
There is no way to sugarcoat the year 2021 in tax administration. It was the most challenging year taxpayers and tax professionals have ever experienced – long processing and refund delays, difficulty reaching the IRS by phone, correspondence that went unprocessed for many months, collection notices issued while taxpayer correspondence was awaiting processing, limited or no information on the Where’s My Refund? tool for delayed returns, and – for full disclosure – difficulty obtaining timely assistance from TAS.
To its credit, the IRS performed well under difficult circumstances. Since the start of the pandemic, it has implemented significant programs enacted by Congress, including issuing 478 million Economic Impact Payments totaling $812 billion and sending Advance Child Tax Credit (AdvCTC) payments to over 36 million families totaling over $93 billion.
However, taxpayer service was the worst it’s ever been. The combination of processing delays and questions about new programs such as the AdvCTC caused IRS telephone call volumes to almost triple to 282 million calls, and customer service representatives answered just 11 percent of those calls. Taxpayers and tax professionals were understandably frustrated and dissatisfied. After all, it’s difficult to comply with the tax laws when you can’t get your question answered in a timely manner.
Along the same lines, the IRS took months to process taxpayer responses to notices, further delaying refunds. It took an average of 199 days for the IRS to process taxpayer responses to proposed adjustments, up from 74 days in fiscal year 2019, the most recent pre-pandemic year. In many cases, if the IRS did not process a taxpayer response, automated processes took adverse action or did not release the refund. And when taxpayers attempted to check the status of their refunds on the Where’s My Refund? tool more than 632 million times last year, the tool too often didn’t provide information on unprocessed returns or explain status delays, the reasons for delays, where the returns stood in the processing pipeline, or what actions taxpayers needed to take, if any.
We have written in depth about these issues in our Annual Report to Congress, where we identify the ten Most Serious Problems taxpayers are facing this year: processing and refund delays; 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 email; e-filing barriers; correspondence audits; and the impact of collection policies on low-income taxpayers. We also make administrative recommendations to the IRS to consider in tackling the problems.
By statute, we address the ten tax issues most litigated in federal court. Historically, TAS utilized commercial legal research databases to review published opinions in multiple courts to determine the ten most litigated issues. To gain a broader view of tax litigation, this year TAS used a hybrid methodology by also reviewing the approximately 28,000 taxpayers petitioning Tax Court in fiscal year (FY) 2021. We believe analyzing the issues raised in the notice of deficiency for thousands of Tax Court petitions provides a more accurate view of litigation issues rather than analyzing a few hundred issued opinions.
In the Purple Book, I propose 68 legislative recommendations for consideration by Congress. While these don’t cover every issue, we think Congress can and should consider them to address the issues we have identified. These recommendations include but are not limited to:
- Providing sufficient funding for the IRS to improve taxpayer service and modernize its information technology systems;
- Extending the period for receiving refunds when the IRS postpones the tax filing deadline, as it did in 2020 and 2021 due to the pandemic;
- Authorizing the IRS to establish minimum standards for paid tax return preparers;
- Expanding the U.S. Tax Court’s jurisdiction to hear refund cases;
- Restructuring the Earned Income Tax Credit (EITC) to make it simpler for taxpayers and reduce improper payments;
- Amend IRC §6402(a) to prohibit offset of the Earned Income Tax Credit portion of a tax refund; and
- Expanding the protection of taxpayer rights by strengthening the Low Income Taxpayer Clinic program.
A special thanks to the entire Annual Report to Congress team and all TAS and IRS employees who had a role in the report’s development and delivery. There are many who contribute to the report’s success. I am especially appreciative of their time, dedication, and expertise. This is a team effort throughout the year to get this report delivered to Congress in January.
We in TAS continue to be the advocate for the taxpayer. This report is one of the tools we use to encourage the IRS to implement administrative changes and Congress to consider how it can change laws for the benefit of the taxpayer. I encourage you to take a moment to look through the 2021 Annual Report to Congress (or maybe the Executive Summary) and the 2022 Purple Book and start a dialogue on how together we can work towards improving taxpayer service and tax administration.
On a sad note, I would like to acknowledge the passing of Bill Hoffman, long-time senior IRS reporter for Tax Notes. We in TAS have worked with Bill for many years, and Bill covered our annual reports in detail and was always open to starting a dialogue. Bill never minced words, asked questions his interview subjects didn’t want to hear, and sharply questioned IRS policies and procedures. But it was all done to help the public better understand the workings of tax administration and pinpoint areas where IRS procedures were falling short of meeting taxpayers’ needs and expectations. He will be missed.