Executive summary: Top 10 most serious problems encountered by taxpayers
Each year, the IRS National Taxpayer Advocate (NTA) reports to Congress on the 10 most serious problems encountered by taxpayers and makes recommendations to alleviate these problems. The Taxpayer Advocate, Erin Collins, expressed optimism when reflecting on the IRS’s efforts this past year to reduce historically high backlogs in paper processing brought on by the pandemic and implementation of programs to provide economic relief from the pandemic. The Taxpayer Advocate attributes her optimism to the guaranteed funding stream provided to the IRS under the Inflation Reduction Act of 2022 and the streamlined hiring authority recently granted to the IRS. If money is spent wisely, the IRS could revolutionize its outdated technology, drastically improve customer service, and retain top talent. The report highlights that taxpayers and tax professionals should continue using online tools to streamline their interactions with the IRS, including taxpayers registering for an online account with the IRS. Please see the prior alert: Smile! The New IRS identity verification process requires a selfie.
Taxpayer advocate reports to Congress on improvements and significant backlogs
The NTA identified the following problems and proposed certain recommendations to improve the taxpayer experience.
The IRS continued to experience unprecedented delays in paper processing. Improvements were noted from the prior years; However, the IRS relies on manual processes and outdated technology. In December 2022, the IRS had 29.3 million unprocessed returns, including 4.3 million Forms 1040 for 2022.
The complexity of the tax code
The Internal Revenue Code (IRC) is complex. Taxpayers and small businesses struggle to understand and file their tax returns. The NTA recommends uniform definitions and that the code should be simple enough to minimize voluntary noncompliance and easier for the IRS to administer.
IRS Hiring and training
Fragility in the Human Capital Office’s hiring, recruitment and training undermines the IRS’s effort to provide better customer service. The IRS must allocate funding to this area to hire the right people and fast. It currently takes the IRS approximately 80 days to complete the hiring process.
Telephone and in-person service
The IRS was only able to answer 13% of the calls received in 2022, a trivial improvement from the prior year. Taxpayers continue to face frustrations when trying to reach a representative over the phone or in person. Critical to improving customer service are eliminating the paper backlog, modernizing online access and extend hours of operation.
Online Access for taxpayers and tax professionals
While the IRS online account lacks integration and functionality, every taxpayer is encouraged to sign up to use the tool. Focusing on improving the online experience to entice taxpayers to use the platform is critical. The online account should be a one-stop solution for all IRS digital offerings where a taxpayer can perform multiple tasks in a single visit to the IRS website. Online accounts currently do not provide a central hub with which a taxpayer could upload correspondence, retrieve their identity protection pin or access Where’s my refund or Where’s My Amended return? The NTA recommends that the IRS add increased functionality and offerings of self-service applications to the Tax Pro Account and deploy an online account for businesses.
E-file and Free File
The IRS e-filing system continues to create obstacles and lacks ease of use for taxpayers. Approximately 31% of taxpayers who experienced e-file rejections experienced multiple rejections during the 2022 filing season. Business income tax returns were e-filed at a 70% rate, this presents an immediate opportunity for an enhanced e-filing system. The NTA recommends the IRS evaluate the need to reject returns, make all IRS forms compatible with e-filing and upgrade business taxpayer’s e-file experience regarding information returns.
Although minor improvements were made in the prior filing season, the IRS fails to meet expectations regarding full transparency of return processing delays, correspondence status, new guidance, and how to comply with tax obligations. Taxpayers have difficulty obtaining information and answers. The NTA recommends that the IRS commit to providing regular budget and information reports, improve Where’s My Refund?, IRS2Go, and online accounts, and provide specific information on the cause of delays.
Return preparer Oversight
The IRS does not enforce minimum competency standards for all return preparers. This harms taxpayers, leaving them vulnerable to errors that could result in an overpayment, underpayment of tax liability and avoidable collection actions. Taxpayers are responsible for inaccuracies and due diligence in selecting tax preparers. The NTA recommends Congress prioritize the assessment and collection of tax preparer violations.
The average appeals office (AO) case takes approximately one year to resolve. This is another backlog stemming from the various staffing challenges faced by the IRS and AO. The independent AO fails to keep up with case inventory and obtain funding to enable hiring and modernization of systems and electronic case files.
The IRS rules and procedures on overseas taxpayers are extraordinarily complex. This accumulates more frustration in addition to the many barriers already faced in meeting U.S. tax filing obligations. It is estimated that 9 million U.S. taxpayers live abroad and experience restricted access to IRS support and resources. The NTA recommends improvements to e-filing, FAQ’s and online resources for overseas taxpayers.
The IRS’s delays frequently result in various issues that taxpayers may need Tax Controversy professionals’ advice on. Please contact the drafters of this tax alert if you require assistance with any of the issues outlined above.
This article was written by John Cardone, Kori Pitts and originally appeared on Jan 18, 2023.
2022 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.