The year 2021 provided no shortage of taxpayer problems. As I stated in my Fiscal Year 2022 Objectives Report, this past year and the 2021 filing season conjure up every possible cliché for taxpayers, tax professionals, the IRS, and its employees – it was a perfect storm; it was the best of times and the worst of times; patience is a virtue; with experience comes wisdom and with wisdom comes experience; out of the ashes we rise; and we experienced historical highs and lows. Calendar year 2021 was surely the most challenging year taxpayers and tax professionals have ever experienced – long processing and refund delays, difficulty reaching the IRS by phone, correspondence that went unprocessed for many months, collection notices issued while taxpayer correspondence was awaiting processing, limited or no information on the Where’s My Refund? tool for delayed returns, and – for full disclosure – difficulty obtaining timely assistance from TAS.
The IRS Deserves Credit for Playing the Hand It Was Dealt
One irony of the past year is that, despite its challenges, the IRS performed well under the circumstances. The imbalance between the IRS’s workload and its resources has never been greater. On the workload side, the number of individual taxpayers the IRS serves has increased by about 19 percent since 2010, as the number of Form 1040 series returns rose from about 142 million in that year to about 169 million in 2021. While there is no perfect measure of the IRS’s workload, return filings are a good approximation because most IRS work – including fraud screening, telephone calls, audits, collection actions, TAS cases, Appeals cases, Tax Court cases, and other downstream consequences – keys off the number of taxpayers filing returns. During the last 18 months, Congress charged the IRS with administering several COVID-19 pandemic financial relief programs, including three rounds of stimulus payments (also known as Economic Impact Payments), monthly payments of the Advance Child Tax Credit (AdvCTC), reduction of the taxability of unemployment compensation in the middle of the 2021 filing season, and other provisions directly impacting tax administration. Each financial relief program consumed considerable IRS resources to administer, including overall planning, information technology (IT) programming, implementation, public communications, and responding to taxpayers’ questions and account issues. To address these needs, the IRS had to reallocate resources from its core tax administration responsibilities.
Over the last decade, examination coverage has decreased, enforcement efforts have been negatively impacted, and the Level of Service has continued to drop as the IRS’s workforce and budget have declined. On the resources side, the IRS’s baseline budget has been reduced by about 20 percent on an inflation-adjusted basis since fiscal year (FY) 2010, and its workforce has shrunk by about 17 percent. Although Congress provided supplemental funding to help the IRS implement pandemic-relief programs, it is not feasible for an agency the size of the IRS to staff up and train new employees quickly. The IRS also is limited in its ability to hire new employees when funding is provided on a one-time basis because there is no assurance it will have sufficient funding in future years to retain those employees. In addition, the social distancing required during the pandemic forced the agency to close or limit staffing in processing centers where employees work in close quarters, further restricting its production capacity.
Despite its limitations, the IRS processed most e-filed tax returns timely, it issued 130 million refunds totaling $365 billion, it issued 478 million stimulus payments totaling $812 billion, and it sent AdvCTC payments to over 36 million families that totaled over $93 billion. The IRS’s leadership and workforce deserve considerable credit for their accomplishments.
Yet 2021 Was the Most Challenging Year Ever for Taxpayers
There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous.