It’s been more than 100 years since the first Form 1040 was introduced. The IRS has been through a lot in the past century – everything from playing a critical role in prohibition and taking down Al Capone to leaning into digital transformation and making electronic filings possible.
Fast forward to 2022 and this tax season is on track to be the worst ever.
So, why is the pandemic throwing the agency so far off its game? According to the Annual Report to Congress from the Taxpayer Advocate Office, many factors are in play.
- The IRS is woefully understaffed. According to the report, the imbalance between the IRS’s workload and its resources has never been greater. Over the past decade, the IRS workforce is down 17% and workload is up 19%.
- The technology needs a massive overhaul. The systems that house taxpayer information are the oldest major technology systems within the federal government. The case management systems are not interconnected. Obsolete systems with limited functionality prevent taxpayers from checking the status of their cases. These examples are just scratching the surface.
- Congress tasked the IRS with handling pandemic financial relief programs. Among other responsibilities, the IRS has been managing stimulus payments, Advance Child Tax Credit (AdvCTC) payments, and reducing taxability of unemployment compensation (in the middle of the 2021 filing season, no less).
The report credits the IRS’s leadership and workforce, saying they “deserve considerable credit for their accomplishments.”
But as taxpayers spend a second year bracing for filing issues, problems and delays, they want answers, not explanations. So, as the agency seems to be on the brink of disaster, what can be done to right the ship?
In addition to the obvious funding needs, the IRS needs innovative solutions to address staffing shortages and antiquated technology systems.
Former National Taxpayer Advocate Nina Olson wrote about these problems in a recent article and got our tax department thinking about potential solutions.
Solution #1: Treat IRS employees as essential workers
The pandemic has shined a spotlight on how essential the IRS is to the country’s economic well-being. Americans need their refunds – especially with today’s inflationary landscape. So the IRS needs all hands on deck to be processing mail and returns and answering the phones.
During the pandemic, healthcare workers were required to report in person for full shifts and the federal government ensured safe working conditions for the healthcare workers. The IRS should be operating in the same manner.
Should another wave of the pandemic rear its head, this might entail spreading shifts around the clock to ensure social distancing.
Solution #2: Pause audits and collections
Last month, the AICPA asked the IRS to do the following, among other things:
- Discontinue automated compliance notices until it can make progress resolving taxpayer issues
- Suspend collection actions while it processes penalty abatement requests
These are valid requests. The IRS needs to pause any activity that can generate phone calls or confusion. The department has temporarily stopped issuing some notices, but a temporary shutdown of audit and collection notices would go a long way toward freeing up customer service and processing resources.
This strategy would also help with the personnel shortage.
According to the IRS commissioner, the IRS is seeking to hire 5,000 people to handle customer service. So far, they’ve been able to find fewer than 200. On the other hand, new hires in audit and collections have been much easier to find.
Customer service ranks as a higher priority right now than audit and collections. As such, those new hires could and should be handling customer service.
This agile operating style, prevalent and effective in private organizations, is one of many new culture shifts that the agency must embrace if it is going to survive.
During filing season, the IRS must become strategic in how it deploys its resources. In short, any employee not absolutely needed in another capacity should be reassigned to processing returns and corresponding with taxpayers.
There are natural benefits from this operating style that would benefit the employees and the agency itself. Not only will this strategy ease bottlenecks in the pipeline, but agents throughout the IRS would come away with an insightful perspective from the taxpayer’s point of view.
Solution #3: Hire back willing and able retirees
This solution is a simple one.
During the pandemic, more people opted for retirement. The IRS is no different.
The IRS could hire back retired employees. Those who provided customer service and processed returns would be ideal, but the IRS should be pursuing anyone with previous agency experience.
Solution #4: Invest in technology that minimizes manual processing and call volume
IRS employees must manually review any return that is flagged for identity theft or suspicious activity. To add insult to injury here, many of those flagged returns have been flagged in error. That means countless hours are being wasted. The IRS needs funding to invest in the appropriate technology to reduce these manual and other manual processes.
Technology that could ease the pain includes:
- Scanning software. The IRS could then machine-read paper returns and eliminate the need for manual transcription of return entries.
- Customer callback technology. This way, taxpayers and tax professionals don’t have to spend hours on hold. They simply receive a return call when the next agent is available.
- Email. Develop a system that enables taxpayers to communicate with IRS agents by secure email.
- Filing season dashboard. To drive transparency and create trust with taxpayers, the IRS should build a filing season dashboard that is regularly updated. Taxpayers would be able to obtain answers to their questions and understand various wait times for call processing, paper tax return processing, lags created by math errors, etc. The dashboard would be an ideal place to minimize confusion by keeping taxpayers informed. For example, right now it would be extremely helpful if the dashboard could be updated – in real-time – with a list of notices that have been suspended.