2021 Tax Filing Season Plagued With Unanswered Calls, Delayed Refunds

Erin Collins, head of the Taxpayer Advocate Service, an independent organization within the Internal Revenue Service, issued her statutorily mandated midyear report to Congress on Wednesday.

The report presents an assessment of the 2021 filing season, and identifies key objectives the TAS will pursue in the coming fiscal year. It also contains the IRS' responses to the 73 administrative recommendations Collins made in her 2020 annual report to Congress.

In the new report, the advocate lays out the difficulties the IRS faced in performing its traditional work because of the pandemic and the added responsibilities it was assigned to make three rounds of stimulus payments, which combined to create significant challenges for taxpayers.

Successes and Failures

In the 2021 tax filing season, the IRS processed 136 million individual income tax returns and issued 96 million refunds totaling some $270 billion. That matches up closely with the results of the last typical filing season in 2019, the report said.

Besides its traditional work, the IRS issued three rounds of stimulus payments over the past 15 months as directed by Congress, making about 475 million payments worth $807 billion to mitigate the effect of the pandemic on U.S. families and businesses.

The report said most taxpayers successfully filed their returns and received their refunds, but a historically high number did not.

At the end of the filing season, the IRS had a backlog of more than 35 million individual and business income tax returns that require manual processing, i.e., employee involvement before a return can advance to the next stage in the processing pipeline. The culprit? The pandemic-related evacuation order that restricted employee access to IRS facilities.

The processing backlog matters greatly, the report said, because most taxpayers overpay through wage withholding or estimated tax payments and are entitled to receive refunds when they file their returns. The government also uses the tax system to distribute financial benefits, such as Earned Income Tax Credits.

"For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog," Collins wrote. "But particularly for low-income taxpayers and small businesses operating on the margin, refund delays can impose significant financial hardships."

According to the report, the IRS received 167 million telephone calls on its toll-free lines in the 2021 filing season, more than four times as many as during the 2019 filing season. IRS employees could not keep pace with this massive volume of calls, resulting in the poorest service ever, the report said.

The IRS reported a "Level of Service" on its Accounts Management telephone lines of 15%, with only 7% of taxpayer calls reaching a telephone assistor. On the "1040" line, the most frequently called IRS toll-free number, taxpayers placed about 85 million calls, but only 3% reached a telephone assistant.

"When so few callers can get through to a telephone assistor, problems remain unsolved and taxpayer frustration mounts," Collins wrote.

Lessons From the Pandemic Year

Over the long run, the report said, lessons learned from the pandemic can be useful in helping to identify or reprioritize needs for improved tax administration and taxpayer service.

It recommended that the IRS take the following proactive steps to improve service and communication with taxpayers:

Prioritize the development of accessible, robust online accounts. The IRS' online account option for individual taxpayers has limited utility. Most taxpayers who try to establish online accounts fail because they cannot pass the e-authentication requirements, and the functionality of the accounts is limited.

TAS recommends that taxpayers be given the option of interacting online with the IRS for all common transactions. It further recommends that tax practitioners be given access to online accounts on behalf of their client taxpayers and that the IRS prioritize providing this service to practitioners.

Expand customer callback technology to all IRS toll-free telephone lines. The IRS offers taxpayers the option of receiving a call back when the wait time to speak with an assistant is long, but on only some of its telephone lines. TAS recommends that the IRS make customer callback an option on all high-volume telephone lines.

Reduce barriers to e-filing tax returns. One of the biggest challenges the IRS has faced over the past year has been processing paper returns. Some taxpayers prefer to file on paper, but many taxpayers file on paper because they are prevented from e-filing — sometimes they are required to submit statements or other substantiation with their returns, and these attachments generally cannot be e-filed; some tax forms are not accepted electronically; and taxpayers sometimes need to override default entries when preparing their returns with tax software, and some of these overrides render returns ineligible for e-filing.

TAS recommends that the IRS address these limitations so all taxpayers who wish to e-file their returns may do so.

Use scanning technology for paper returns. In 2020, the IRS received some 17 million individual income tax returns and millions of business and other tax returns on paper, and employees then had to manually transcribe the data, line by line, into IRS systems — an enormous task subject to transcription errors, particularly on longer returns.

TAS understands the IRS is exploring the implementation of scanning technology to machine-read paper 2020 tax returns, and recommends it do so for future years as well.

Expand digital acceptance and transmission of documents and digital signatures. When the March 2020 closing of IRS offices and mail facilities made it impossible for IRS employees to receive paper documents from taxpayers, the IRS issued temporary guidance authorizing employees to accept and transmit documents related to the determination or collection of a tax liability by email using an established secured messaging system. Employees are also permitted to accept scanned or photographed images of signatures and digital signatures on documents related to the determination or collection of a tax liability.

TAS recommends that the IRS make these temporary solutions permanent, and continue to explore and prioritize additional digital communication options.

Offer video conferencing options to taxpayers. The IRS Independent Office of Appeals offers WebEx technology for virtual face-to-face conferences among taxpayers, representatives and appeals officers. The IRS Office of Chief Counsel and the U.S. Tax Court also conduct video communications and virtual trials using ZoomGov.com.

TAS said that although videoconferencing should not replace in-person or telephone conference options, its use adds a vital human interaction option to enable communication with taxpayers when appropriate, and provides options for taxpayers who have difficulty traveling or cannot take extended time off from work.