Earlier this month, I spent a week at the IRS campus in Kansas City helping campus employees and surge teams to process the IRS’s paper inventory backlog. IRS executives were asked to do this, partly to assist with the critical work, partly to support our employees who have been working tirelessly for the past two years, and partly to gain a better understanding of the paper-processing challenges the IRS faces and their impact to the entire agency. It was an illuminating experience.
As the National Taxpayer Advocate, my statutory responsibilities include identifying serious problems facing taxpayers and making recommendations to resolve them. For the last two filing seasons, I have focused on the challenges taxpayers and tax professionals have experienced with inadequate phone service, delays with processing paper original and amended returns, delays with e-filed returns suspended for a variety of issues, delays with correspondence, and erroneous or outdated notices, and I have provided recommendations to address these challenges. I have stated on numerous occasions that paper is the IRS’s Kryptonite, and the agency is buried in it. The Kansas City Campus epitomizes that expression.
During the past year, the IRS has taken several steps to decrease the inventory backlog, including hiring additional employees, reassigning employees from other functions to assist with submission processing and accounts management, and utilizing outside consultants. Because most paper is not scanned into computers, employees manually process the returns and correspondence, manually keystroking the numbers from each document into IRS systems digit by digit, and manually moving the returns through the entire process from receipt to storage. Taxpayers and employees have been stuck in this time warp due to underfunding and understaffing.
At the onset of the pandemic and during the height of the 2020 filing season, the Commissioner closed IRS offices and campuses for the health and safety of the employees. In June 2020, our campus employees were called back into the building to restart the processing work for the 2020 filing season (2019 tax returns). During the facilities’ shutdown, millions of returns and correspondence continued to be mailed to the IRS, delivered by the U.S. Postal Service, and piled up in containers outside of the campus buildings. Many logistical challenges were encountered by management and employees as they returned to the building, with the uncertainty of COVID-19 requiring social distancing and adherence to other policies prescribed by the Centers for Disease Control and Prevention.
Besides the inventory backlog challenges, the IRS was directed to implement numerous taxpayer relief programs, including three rounds of stimulus payments and a monthly child tax credit program that required issuing six months of payments to tens of millions of families. These social benefits responsibilities placed additional strain on already limited resources. And in the midst of the 2021 filing season, Congress enacted a $10,200 income exclusion for certain taxpayers who received unemployment benefits during 2020. The exclusion required the IRS to recalculate tax liabilities on millions of filed and processed 2020 individual income tax returns and issue refunds. It took the IRS many months to perform these recalculations, which required duplicative work for millions of returns.
To understand why the pandemic-induced tax administration challenges persist, it’s important to keep that background in mind. But in this blog, I want to focus on the positive. The IRS’s greatest asset is its employees. The Kansas City Campus is home to Submission Processing and Accounts Management, as well as other IRS functions, including the Taxpayer Advocate Service, Examination, and Collections. The campus has over 4,600 employees and over 1.3 million square feet of space.
As the National Taxpayer Advocate, I previously toured this campus, met with local management, discussed challenges, and received updates. But this past week was different. With several of my colleagues from other business units, I had the honor to work side-by-side with our campus employees in the mail room and gained a different perspective of, and appreciation for, their work. During the past two weeks, other colleagues worked at several campuses in other parts of the processing assembly line.
I not only observed firsthand what our mail room employees do every day, but I also had the honor of being assigned to work with the Submission Processing clerks from Unit 31106. Line management and the clerks were unaware of our current positions and assumed we were redistributed employees assigned to their unit; however, shortly before we left, we attended their regular group meeting, introduced ourselves, and explained our positions. I believe they were surprised and appreciated our joining them in the mission.
As you might imagine, the mail room work includes receipt and processing of mail delivered by the U.S. Postal Service and private delivery service companies. The number of deliveries varies during the year, and at peak last year, Kansas City received over 25 million pieces of mail that included the processing of over 14.8 million paper returns. This year, the campus has received over 24 million pieces of mail and over 12 million returns have been processed to date.
It is difficult to envision what IRS employees face every day without standing in the middle of that massive space. As your eye scans the area, you see endless rows of carts filled with paper. These carts move through all the processing stages and are located throughout the building. The carts move from the mail room area to manual processing, batching, code and editing, manual transcription (for line-by-line entry into the IRS’s system), the Error Resolution System (ERS), and placement of a document locator number. Returns with errors are pulled out of the human assembly line and assigned for additional manual work. Eventually, all returns and correspondence move to the end of the process for filing and storage.
What appears to be a chaotic mess is actually a highly organized process that makes perfect sense to the employees but requires numerous hands throughout the entire process.
Unfortunately, the IRS has utilized the same human assembly line for decades to process tax returns and correspondence. Tax returns and correspondence are touched by dozens of employees before reaching their destination.
- The mail arrives at the dock and is sorted by a Service Center Automated Mail Processing System machine, which prints a received date on the envelope, slices the bottom of the envelope to open it, counts each sort, and performs an initial sorting into categories of returns and correspondence.
- The mail and correspondence deliveries are then divided among several clerical groups for opening, date stamping, sorting, and candling of discarded envelopes, which is the first step in the processing of paper as the files move toward batching, code and editing, transcription, and ERS.
- Along the way, employees remove staples, place papers into order as required by the Internal Revenue Manual, and then restaple and sort them for processing. Assuming no issues, the returns are processed, and refunds are paid.
- If a return has an issue, it is pulled out of the process and sent to whichever function addresses that issue. For example, if a return does not have a signature, it must be sent back to the taxpayer; if there is a problem with the classification of an entity, it will be transferred to the entity unit; or if there is a math error, a notice may be issued and taxpayers generally will respond in writing, adding to the pile.
This is an oversimplification as there are numerous additional steps that employees conduct to move a return from the delivery of the mail through the process until the return is filed.
Together with some of my colleagues, I was assigned to the extraction mail room. During my time there, I met many incredible employees.