Many taxpayers had a vastly improved tax-filing experience this year after several seasons of barely functional phone service at the Internal Revenue Service, long wait times for refunds and confusion over temporary pandemic related tax relief.
But a new copacetic chapter in IRS services is far from guaranteed.
Trouble spots at the agency remain, and continued improvements in service hang in question now that the agency’s 2024 base funding—along with extra funding promised under the 2022 Inflation Reduction Act (IRA) for upgrades—is on lawmakers’ chopping block.
Of the $80 billion allocated to the IRS under the IRA in August last year for improvements over 10 years, $20 billion was already rescinded under the Fiscal Responsibility Act in June this year.
President Biden is calling for an increase in IRS appropriations for the 2024 fiscal year to $14.1 billion from $12.3 billion to account for inflation and a 2% cut made in 2022; House Republicans are aiming to cancel unspent IRA funds and slash $1.1 billion out of the annual budget, reducing it to $11.2 billion.
The funds allocated by the IRA enabled some meaningful changes in taxpayer services during that past tax-filing season.
The agency hired 5,000 agents to take calls and process returns. The call answer rate on the IRS main line for taxpayers wanting to speak to a person rose to 87% during this tax filing season from 15% last year, according to the Taxpayer Advocate Service (TAS), a group within the IRS focused on improving and reporting on taxpayer services.
By April, the IRS whittled its backlog of original paper returns to 2.6 million from 13.3 million. Among other improvements are a new taxpayer callback service, new voice and chatbot assistance, and expanded digital capabilities for filers that move the agency toward a goal of 100% paperless processing by the 2025 tax-filing season.
The IRS also staffed up taxpayer assistance centers and tripled the number of taxpayers served to 2.7 million, and added more scanning technology to speed up processing of paper returns, among other improvements.
There are still areas of significant IRS weakness, however.
A two-year backlog of amended tax returns has barely improved. It was at 3.4 million in April this year compared with 3.6 million in April 2022, according to TAS.
The processing time of amended returns is still seriously delayed, at around seven months, largely due to many businesses retroactively trying to claim employee retention credits. That was a pandemic relief measure, allowing businesses to potentially claim credits of $26,000 per employee. Numerous fraudulent claims have required stepped up scrutiny.
Processing and phone wait times on issues that aren’t handled by agents on the main phone line, such as for assistance for identity theft, compliance, collections and installments, continued to be frustrating for many taxpayers, according to TAS. When including all individual taxpayer calls to the IRS—also factoring in the improved pickup rate on the main line—the call answer rate by an IRS agent was just 35%.
For folks with an approaching tax-filing deadline (pass-through entity owners must file by Sept. 15 and individuals by Oct. 16), services could get bogged down by an inordinately large number of taxpayers are using extended deadlines for their 2022 returns, says Jen Mosely, senior tax manager at Moss Adams.
“This year things will be really busy with all of the wildfire related extensions—all of California got automatic extensions for their 2022 returns,” Mosely says.
Advisors recommend filing electronically whenever possible, opting for direct deposit for refunds, creating an IRS account to organize and view your tax return and using the IRS website as a resource to answer questions. When calling the agency, aim to do so when traffic is slower—early in a filing season or early in the day.
Also, keep records on when you filed a return or other communication with the IRS in case it gets backlogged. Many taxpayers in recent years received erroneous penalty notices for unpaid taxes because the IRS still hadn’t gotten around to processing their returns in which they had included payment.
“These practices, which were helpful in recent years for individuals, are still relevant,” says Garrett Watson, senior policy analyst at the Tax Foundation. To avoid getting caught up in lingering IRS backlogs and mishaps, keep clean records and take care to avoid math errors, Watson says. “Minimize the need to go back and amend a return.”
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