National Taxpayer Advocate 2021 Annual Report focuses on taxpayer impact of processing and refund delays


IR-2022-11, January 12, 2022

The report credits the IRS for performing well under difficult circumstances including COVID. The IRS implemented significant addition programs, including 478 million stimulus payments (Economic Impact Payments or “EIPs”) and Advance Child Tax Credit (AdvCTC), but “[t]he imbalance between the IRS’s workload and its resources has never been greater.” Since fiscal year (FY) 2010, the IRS’s workforce has shrunk by 17%, while its workload – as measured by the number of individual return filings – has increased by 19%.

At the May 17, 2021 postponed filing deadline, the IRS was holding 35.3 million tax returns for employee review that consisted of roughly half unprocessed paper returns and half tax returns suspended during processing. That lead to refund delays for many of these taxpayers. As of late December 2021, the IRS had 6 million unprocessed original individual returns (Forms 1040), 2.3 million unprocessed amended individual returns (Forms 1040-X), more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence – with some of these submissions dating back at least to April 2021 and many taxpayers still waiting for their refunds nine months later.

Although e-filed returns fared better than paper returns, millions of e-filed returns were suspended during processing requiring manual review due to discrepancies between amounts claimed on the returns and amounts reflected on IRS records, most commonly Recovery Rebate Credit (RRC) claims by taxpayers who did not receive some or all of their stimulus payments as EIPs the prior year. The number of returns suspended and requiring manual processing is likely to be high again in 2022.

Refund delays have a disproportionate impact on low-income taxpayers. Earned Income Tax Credit (EITC) benefits are worth up to $6,660, Child Tax Credit benefits [were] worth up to $2,000 per qualifying child under tax year 2020 rules, and RRCs are potentially worth several thousand dollars for families who did not receive some or all of their EIPs. Millions of taxpayers rely on the benefits from these programs to pay their basic living expenses, and when refunds are substantially delayed, the financial impact can range from mild inconvenience to severe financial hardship.”

The report says processing delays led to a cascade of customer service problems:

  • The IRS’s “Where’s My Refund?” tool often could not answer the question;
  • Telephone service was the worst it has ever been. Call volumes were almost triple from 2020 to a record 282 million telephone calls, but Customer service representatives (CSRs) only answered about 32 million, or 11 percent. Most callers could not obtain answers to their tax law questions, get help with account problems, or speak with a CSR about a compliance notice. The IRS reported that hold times averaged 23 minutes,” but Practitioners and taxpayers have reported much longer hold times.
  • The IRS took months to process taxpayer responses to its notices, further delaying refunds. The IRS sent tens of millions of notices to taxpayers during 2021, included nearly 14 million math error notices, Automated Underreporter notices (where an amount reported on a tax return did not match the corresponding amount reported to the IRS on a Form 1099 or other information reporting document), notices requesting a taxpayer authenticate his or her identity where IRS filters flagged a return as potentially fraudulent, correspondence examination notices and collection notices. In many cases, taxpayer responses were required, and if the IRS did not process a response, its automated processes could take adverse action or not release the refund claimed on the tax return. The IRS received 6.2 million taxpayer responses to proposed adjustments and took an average of 199 days to process them – up from 74 days in FY 2019, the most recent pre-pandemic year.