Is the IRS Collapsing?
As the agency groans under the burden of administering the tax code, it also suffers from the growing weight of its processing and administrative problems.
There is little doubt that the Internal Revenue Service is groaning under the burden of administering the tax code, which now exceeds more than 4 million words (up from 1.4 million, in 2000). The question is whether the agency will collapse under the growing weight of its concomitant processing and administrative problems.
Let’s consider a few sobering examples of what the IRS is up against, as identified by the National Taxpayer Advocate, Erin Collins, in her 2021 Annual Report to Congress.
1. Phone calls to the agency. In 2020 and 2021, Congress passed several significant tax law changes ostensibly to help Americans cope with the Covid-19 pandemic. It seems those changes thoroughly confused taxpayers.
In both 2019 and 2020, the IRS received about 100 million phone calls from taxpayers seeking help for various reasons. That volume of calls was standard over the past decade. But 2021 was quite a different story. That year, incoming call volume exploded to nearly 282 million — nearly tripling the load. There are no signs that things are getting better either, as more people than ever are thoroughly confused and are reaching out to the agency for help because of ongoing law changes.
2. Level of Service (LOS) for incoming calls. Phoning the IRS looking for help and actually getting help are two different things. It should come as no surprise that as call volume increased, the IRS’s capacity to answer the phone dropped. In other words, while 282 million people called the IRS, 282 million people did not get the help they were looking for.
The IRS refers to its ability answer the phone and render assistance as the “level of service” it provides. During 2019 and 2020, the IRS answered just 28.7 percent and 24.1 percent of citizens’ incoming calls, respectively. In 2021, that number plummeted to just 11.4 percent. Just over one in every nine people calling the IRS was able to talk with a person. In March 2021, the LOS dropped to below 4 percent — the worst it’s ever been.
The NTA reports that those who did get their calls answered did so after waiting on hold for an average of 23 minutes. But I can tell you, as anybody who’s phoned the IRS during the last 18 months can, a 23-minute wait time is extremely short. Most people wait for much longer, sometimes hours. The published hold time is misleading because most calls are simply cut off — or the caller just gives up — long before the call is answered.
Now, keep in mind that people calling the IRS are taking the initiative to file their tax returns correctly and on time. They are seeking clarity regarding IRS notices and letters so they can comply. A great number of calls are from people trying to make arrangements to pay their taxes. What kind of message does it send to the public when those trying to comply cannot get the help they need to do so?
One of the arguments used to support the push for $80 billion in additional funding under President Biden’s failed Build Back Better plan was the alleged need to equip the IRS to better assist citizens via telephone. But I have a hard time believing that any amount of money would be sufficient to build the infrastructure and staff necessary to handle 282 million calls annually.
3. Processing tax returns and correspondence. The core function of the IRS is to collect taxes, and the key to collecting taxes is to process tax returns. In 2021, the IRS received just over 160 million individual income tax returns. Businesses filed another 104 million returns.
By the end of the 2021 filing season, the IRS had a backlog of over 35 million unprocessed returns. As late as December 2021, the IRS still had:
- 2 million unprocessed personal tax returns,
- 8 million unprocessed business tax returns,
- 9 million unprocessed amended personal and business returns, and
- Approximately 4.75 million unprocessed pieces of general taxpayer correspondence.
There was even an inventory of unprocessed returns from the 2020 filing season. And here we are in the midst of a new filing season in which another 260-plus million returns will be filed.
The logjam of unprocessed returns has meant that citizens have experienced long delays in getting refunds and in meeting the filing demands of the IRS’s various compliance functions. That’s to say nothing of the need to prove one has filed his return for non-tax purposes, such as buying a home, getting refinanced, or obtaining student or business loans. The logjam has also subjected citizens to serious hardship in their private lives. Millions of Americans rely on tax refunds to pay their bills. Delayed refunds mean that many likely couldn’t pay necessary living expenses.
Long processing delays in turn led to yet another overloaded system: the IRS’s website. The number of visits to the IRS’s website went from 651 million in 2019, to over 2 billion in 2021. The visits to its “Where’s My Refund” page nearly doubled, from 369 million 2019 to over 632 million in 2021.
The problem with Where’s My Refund, as explained by the NTA, “is that it was non-functional” for tens of millions of people because “it does not explain any status delays, the reason for the delay, where the return is in the process, or what needed to be done.” This lack of clarity meant that millions “went many months without any status updates, and some are still waiting for their refunds.”
What do you suppose is in store for taxpayers this filing season? The same, or worse.
It is now clear that our current tax system is collapsing, and $80 billion in more revenue will not fix the problem. The system is now far too vast in both scope and complexity, and is only getting worse as Congress stirs the pot with ongoing law changes. Tax reform must focus principally on simplicity, efficiency, and neutrality. This will greatly lighten the compliance load for the vast majority of citizens who are overburdened with tax-law compliance. Failure to do so only drives up the already staggering compliance costs and provides incentive for some people to simply not comply with the law.