IRS tax backlog smaller leading into 2023 tax season than it was in 2022
Susan Tompor, Detroit Free Press
8 min read
It’s no secret that the IRS faced a chaotic mess that delayed millions of income tax refunds from the start of the pandemic in 2020, a mess that lingered and triggered even more misery for many taxpayers well into 2022.
What happens this tax season or next is anyone’s guess. The Internal Revenue Service is likely to start processing 2022 returns in late January — and that's going to add a crush of new 1040s onto a pile of unprocessed returns from last year. Granted, the backlog isn't as huge as it was at the start of 2022 — and that's a very good thing.
Odds are, experts say, that this year's tax season will be somewhat smoother than last year. But it's back-handed optimism at best.
"2023 is likely to be better but remember how bad 2022 was,” said Edward Karl, vice president of taxation for the American Institute of CPAs.
“I’m not sure how good a 'better' 2023 will be. It remains to be seen," Karl said.
Some 'light at the end of the tunnel'
The National Taxpayer Advocate indicated Wednesday that there’s a beginning for some “light at the end of the tunnel.” Even so, Erin M. Collins, the National Taxpayer Advocate, acknowledged in a report to Congress: “I am just not sure how much further we need to travel before we see sunlight.”
The IRS aggressively engineered a plan to cut into its backlog in 2022 and made solid progress churning through the millions of returns that waited to be processed.
“The IRS starts the 2023 filing season in a far better position,” Collins wrote in her report.
The existing backlog still means that the IRS won’t launch this year’s tax season with anything close to what's viewed as a fresh start, and it’s bound to “create challenges for the 2023 filing season before it even starts and continuing frustration and delays for taxpayers,” according to the National Taxpayer Advocate's annual report to Congress.
More help at the IRS is on the way — but many new hires will need to be trained, so it's not a quick fix.
Taxpayers who e-file may be spared
No one wants to relive last year's tax nightmare.
The majority of taxpayers who e-filed their returns and didn’t have issues saw refunds paid promptly. But tax professionals pulled their hair out trying to work through problems and get in contact with the IRS.
Millions of people waited endlessly for refunds in 2022. It was the third year in a row that the IRS failed at meeting its responsibility to pay timely refunds, according to the taxpayer advocate’s latest report.
Many IRS notices sent to taxpayers in 2022 only triggered more paperwork and confusion at a time when the IRS was over-stretched.
Some taxpayers complained early last year that they received notices from the IRS that their paper 2020 federal income tax return wasn't received yet, even though the check for the taxes due was cashed long ago. The IRS later said it would "suspend notices in situations where we have credited taxpayers for payments but have no record of the tax return being filed."
About 15 million notices were sent out in 2022 that involved math errors, according to the latest report from the taxpayer advocate.
Last year, about 13 million individual taxpayers filed paper returns. Paper processing delays meant that refunds for these taxpayers were delayed significantly, generally by six months or longer.
The latest report indicated that the IRS will be starting the 2023 filing season in better shape than the last two years.
At the start of last year, according to the report, the IRS had a backlog of 4.7 million original individual 1040 returns. It also had a backlog of 3.2 million original business returns and 3.6 million amended returns for individuals and businesses combined.
By Dec. 9, 2022, the IRS had reduced those backlogs to 1 million original individual returns, 1.5 million original business returns and 1.5 million amended returns. The inventory of paper returns was reduced by nearly two-thirds. The IRS can begin processing paper returns that will be filed in the next few months for the 2022 year much earlier in the filing season — which should lead to quicker refunds.
By Dec. 23, the IRS data showed that the IRS made more progress in reducing its unprocessed paper backlog to 400,000 original individual returns and about 1 million original business returns.
Individuals are still encouraged to file electronically and request direct deposits into bank accounts to receive a tax refund as soon as possible.
Overall, about 10 million unprocessed individual and business tax returns — including amended returns and those returns where processing was suspended — remained as of Dec. 9, 2022, the most recent data available when the report was compiled for the National Taxpayer Advocate’s report to Congress issued Wednesday.
That’s down nearly 38% from the backlog of 16 million unprocessed returns as of Dec. 31, 2021.
The number of returns where processing was suspended — now requiring manual processing — saw a bit of an increase. Much of the jump was blamed on ID theft-related cases where crooks use stolen ID information and attempt to file fake returns to steal tax refund money. "The number of returns in suspense status increased from 4.2 million to 5.9 million, primarily due to an increase of 1.3 million suspected identity theft cases," the report noted.
Some will turn out to be fraudulent claims. But the IRS website stated on Jan. 9 that extenuating circumstances caused by the pandemic drove up identity theft inventories at the IRS. On average, the IRS stated, it is taking about 360 days to resolve identity theft cases. The taxpayer advocate report calls a year-long delay “unacceptable” and urged the IRS to assign additional employees to process these cases.
IRS says major progess was made
The IRS said the agency has made major progress working through "more inventory in the last 12 months than during any one-year period in history."
The IRS said the agency had to overcome "unprecedented obstacles caused by the pandemic," while processing record amounts of tax returns.
"A year ago, as the IRS was preparing to enter the 2022 filing season, we faced an unprecedented backlog of more than 20 million unprocessed paper returns and correspondence due to decades of underfunding and pandemic disruptions," the IRS said in an emailed statement to the Free Press.
IRS employees, according to the statement, worked long hours and overtime to address the issue and will continue such work in the weeks ahead.
"We expect the 2023 tax filing season to unfold smoothly for taxpayers," the IRS said in an emailed statement to the Free Press.
People who file electronically with direct deposits, according to the IRS, should generally see federal income tax refunds in 21 days or less if there are no issues with their tax returns.
The IRS said it will work with the National Taxpayer Advocate and others to transform the IRS. "Many of the ideas outlined in the (advocate's) report can be possible given the consistent, multi-year funding provided in the Inflation Reduction Act," the IRS said.
The IRS is expected to overhaul its technology, customer service and hiring processes after Congress provided billions last year in relief. House Republicans kicked off this year by passing a bill that would rescind nearly $71 billion that Congress had provided the IRS. The legislation is unlikey to advance further.
Good luck reaching a real person at the IRS
Nearly everyone who tried to call the IRS last year through the telephone service ran into some sort of glitch. While there's optimism on that front ahead, most don't expect significant improvements right away.
Only 11% of callers could talk to anyone by phone at the IRS in 2021. Last year, almost 13% could see their calls answered by an IRS employee.
Collins acknowledged that problems with IRS phone service in 2022 were "incredibly frustrating" for many taxpayers and tax professionals, as the IRS shifted the duties of employees.
The IRS took customer service reps off the phones and elsewhere in 2022 and assigned them to tackle the paper backlog. It was a strategic move, the taxpayer advocate noted, to deal with a crush of paperwork and get tax refunds out the door.
But it didn’t serve customers who needed answers. The average time on hold for those who got through was 29 minutes last year, up from 23 minutes the year before.
Tax professionals who call a separate line for practitioners couldn’t get through many times, either.
“The challenges of the past three filing seasons have pushed tax professionals to their limits, raising client doubts in their abilities and creating a loss of trust in the system — often through no fault of the tax professional,” the advocate’s report noted.
While things aren’t going to turn around completely for the better this tax season, some hope exists for improved service.
The IRS has been able to hire, including adding 4,000 new customer service representatives. The IRS is seeking to hire 700 additional employees to provide in-person help at its Taxpayer Assistance Centers.
Congress has provided the IRS with significant additional funding to increase its customer service staff.
A boost in staffing, though, will require experienced employees to be pulled from their regular caseloads to train new hires, according to the report. In the short run, fewer employees at some points could be assisting taxpayers and that could create hiccups in the tax season ahead.
