The IRS has made significant strides in reducing its backlog of returns but still needs improvement in taxpayer services and other areas, National Taxpayer Advocate Erin M. Collins found in her 2022 Annual Report to Congress.

In fulfilling its mission of processing tax returns, paying refunds, answering and addressing telephone calls, and providing in-person assistance to taxpayers who seek it, the IRS must do many things, starting with eliminating the backlog of unprocessed tax returns and correspondence, she wrote.

“The main focus of this year’s report is the elephant in the room—the continuing customer service challenges taxpayers are experiencing and the negative impact of the filing season backlog,” Collins wrote.

The IRS has made progress in that effort, she reported, noting that the IRS reduced the backlog of unprocessed 2022 tax season individual and business returns from 11.5 million at the beginning of the year to about 4 million by mid-December.

But she faulted the IRS for not meeting its obligation to issue refunds in a timely manner; in 2022, two-thirds of taxpayers were owed refunds with an average refund amount of $3,200, but many who did not receive timely refunds filed paper returns. Last year, she wrote, "about 13 million individual taxpayers filed paper returns, and millions of e-filed returns were 'suspended' because they tripped IRS processing filters and required further review by IRS employees. In other words, those returns required human intervention and could not be automated." She said that IRS data suggests that “millions of taxpayers who filed paper returns or whose e-filed returns were suspended for further review have been waiting 8.5 months or longer to receive their refunds. That is not acceptable.

“Unlike return processing, telephone service did not improve in 2022,” she reported. In 2021, only 11 percent of callers reached a telephone assistor, a number that only increased to 13 percent in 2022 meaning that about seven out of every eight calls did not get through to a telephone assistor. “For those who did get through, the average time spent on hold increased from 23 minutes to 29 minutes.”

Tax professionals also complained about poor customer service. Only 16 percent of their calls were answered, with an average hold time of 25 minutes.

To prepare for the 2023 tax season, which begins on Jan. 23, the IRS has hired 5,000 customer service representatives, using the portion of the $80 million allocated to the agency by the Inflation Reduction Act to fix many of its problems.

Collins also noted that the IRS continued to struggle to process taxpayer correspondence, taking an average of 193 days to process taxpayer responses to proposed adjustments in fiscal year 2022, compared to 89 days in fiscal year 2019, the last pre-pandemic year.

“The bad news is that taxpayers and tax professionals experienced more misery in 2022,” Collins wrote. “The good news is that since the close of the 2022 filing season, the IRS has made considerable progress in reducing the volume of unprocessed returns and correspondence. We have begun to see light at the end of the tunnel. I am just not sure how much further we need to travel before we see sunlight."

"The National Taxpayer Advocate plays a vital role for the nation's tax system, and the IRS will be carefully reviewing the annual report to Congress," the IRS said in a statement emailed to Accounting Today. "The IRS appreciates the Advocate's comments acknowledging the hard work of IRS employees to make substantial progress during 2022 on unprocessed tax returns and many other areas. The agency has worked to overcome unprecedented obstacles caused by the pandemic to continue delivering for the nation while also processing record amounts of tax returns. While much work remains, the IRS is poised to deliver a better 2023 tax season for the nation with more services for taxpayers, helped by critically needed new resources provided by the Inflation Reduction Act. We look forward to working with the Advocate and others as we work to transform the IRS; many of the ideas outlined in the report can be possible given the consistent, multi-year funding provided in the Inflation Reduction Act."