The Internal Revenue Service is in need of a major overhaul as its seams continue to unravel, setting up the 2022 tax season for potential chaos. Already understaffed and underfunded, the agency is buckling under the pressure of pandemic-imposed policies, such as the stimulus checks and child tax credit payments. With the proposed funding for the IRS under the Build Back Better act yet to see the light of day (or pass in Senate), tax professionals are bracing for the headaches ahead.
A Failing System
The problem is both technical and political. With the 2022 tax season already in full swing, the agency is still backlogged with some 24 million 2020 tax returns that need manual processing, which it doesn’t expect to resolve until the end of the year. The IRS itself has owned up to its antiquated and failing system, acknowledging the backlog and blaming it on outdated technology in a Jan. 27 statement on its website (the agency relies on a coding language “that has largely gone extinct,” per The Washington Post). Additionally, according to Money.com, “the IRS was only able to answer 11% of the 282 million customer service calls it got in 2021,” undoubtedly outraging tax professionals and taxpayers alike.
Underfunded and Understaffed
The IRS’ budget has been cut drastically over the past decade, leaving it severely underfunded and making it difficult to hire the requisite extra staff needed to field customer service calls, process returns and overhaul the administration’s infrastructure. According to The New York Times, the agency’s workforce is still the same size it was in 1970—approximately 75,000 employees—not nearly enough to carry out its usual operations much less keep up with pandemic stimulus payments. The Biden administration has called for investing $80 billion to fund the agency and bolster its task force to ramp up auditing of potential tax evaders. Though that legislation has yet to pass, the IRS is planning on using its current budget to hire approximately 10,000 workers. Recruiting challenges and low-paying positions have made the hiring process difficult, however, with local Target stores advertising $24 per hour wages (entry level IRS employees in Kansas City, meanwhile, make only $15 an hour), and many new hires require weeks of training.
In additional to the technical and political side, the recent rise of digital currencies, as well as complex tax avoidance maneuvers, “which have made transactions more opaque and harder to tax,” have also complicated matters. Investigating these complex money laundering, wire fraud and tax evasion cases, of course, requires dedicated auditors and is something the Biden administration is pushing to ramp up as previously mentioned.
The current situation at the IRS is so dire, however, that one lawmaker, Rep. Tom Rice (R-S.C.), has gone so far as to say it’s worth considering a pause on all audits, despite the complications it will undoubtedly bring, to focus on customer service and processing this season’s returns. If this 180-degree stance is any indication, we’re in for a long tax season.