For roughly a year, Jonathan Baer watched a paper folder full of tax-related paperwork slowly grow as he chronicled his efforts to get his 2020 tax refund.
The attempts included upwards of 40 phone calls to the Internal Revenue Service. Most ended without speaking to a person. The rare ones that did reach a person still did not shed light on the status of a refund for a tax return he had submitted in April 2021, he said. Baer typically files his taxes electronically, but had sent in a paper return that year because he had to file certain tax schedules.
This July, the “significant” sized refund for the California, Bay Area-based startup business consultant arrived. It was 15 months after he turned in his tax return. “I was delighted to be able to put that file folder away,” he said.
Just as Baer is concluding his protracted tax saga, a related one is dawning on a larger scale.
Democratic lawmakers want to throw $80 billion at the IRS’s problems, but some tax experts are wondering how far the money will go toward making a difference at the backlogged and beleaguered agency — and for taxpayers like Baer who are in search of tax answers and help.
The Inflation Reduction Act, a recently-reached deal between Sen. Joe Manchin, a centrist West Virginia Democrat, and Senate Majority Leader Chuck Schumer, is a $739 billion healthcare, climate and tax package that includes $80 billion in funding for the IRS over a decade.
The money for the IRS — which would supplement annual Congressional appropriations — is supposed to boost the number of audits on wealthy people and corporations, upgrade IRS technology, improve its customer service and rebuild its ranks. The agency says its full-time head count last year was almost 79,000, a roughly 13% decrease from the size in 2012.
More than half of the $80 billion will fund more audits and staff for tax code enforcement aimed at the well-off at a time when audit rates have been dropping over the years thanks to shrinking staff.
The Inflation Reduction Act still needs to go through Congress, and that’s likely to happen according to Capitol Hill analysts.
But a big question from people who’ve heard the consternation of taxpayers and tax professionals trying to deal with the IRS in recent years is how the money will get spent, and how much it will really affect customer service.
According to Senate Democrats’ breakdown of the $80 billion earmark in the Inflation Reduction Act, the money would be approximately carved into:
$45.6 billion for enforcement
$25.3 billion for operations support
$4.7 billion for business systems modernization
$3.1 billion for taxpayer services
But here are some other numbers to consider. In a 2022 tax filing season where the IRS warned of frustrations ahead, the customer service workers answering phone calls were able to answer almost 2.7 million of the approximate 27 million calls people made during open hours, according to an IRS watchdog’s look at operations through March .
By mid-July, the IRS still had a backlog of 10.5 million unprocessed tax year 2021 returns, the agency said. (It consists of 1.7 million returns needing corrections and “special handling,” plus 8.8 million paper returns awaiting review and processing.)
The backlog is a product of pandemic-related office closures, slow-moving manual processing of certain returns, plus the crush of extra work from three rounds of stimulus checks and six waves of child tax credit monthly payments.
At the American Institute of CPAs, Edward Karl, vice president of tax policy and advocacy, does not knock the importance of audits, tax enforcement and other investments for the IRS. But “given the backlog and three filing seasons of horror, heading into a fourth filing season with the backlog still not finished, is that enough money?” he said pointing to the $3.1 billion for taxpayer services. “It feels like it’s not.”
The IRS has put staff into “surge teams” and has been on a hiring blitz in a tight labor market in an attempt to bring in people who can help with the tax return backlog. Karl’s organization has been saying even more can be done.
For Nina Olson, the former National Taxpayer Advocate inside the IRS, the extra money is surely good news even if aspects like taxpayer service could stand to have more of the funding’s share. If enacted, it’s going to be important for the IRS to lay out how it’s going to use the money and how it’s going to measure effectiveness, she said.
“Tell us how it’s going to impact me and by the way, don’t tell me you’re going to give me a chat bot,” Olson said. The IRS has been rolling out chat bots to assist taxpayers in certain situations, including some with AI-capabilities letting people set up monthly installment payments on a tax bill.
But taxpayers have very specific questions based on very specific circumstances, so it often gets to a point where they want to speak with people at the IRS, not a chat bot, Olson said. “They don’t want a canned answer,” she told MarketWatch.
“We are extremely encouraged that there is widespread understanding in Congress that improving enforcement and customer service by hiring more trained professionals and modernizing computer systems is a surefire way to reduce the deficit, fight inflation and make the IRS a more effective and efficient agency,” Tony Reardon, national president of the National Treasury Employees Union, said about the potential IRS funding.
He noted the IRS lost 8,645 customer service representatives from 2010 to 2020.
The IRS did not immediately respond to a request for comment.
The agency’s commissioner, Charles Rettig, has previously said the extra funding is critically needed. “The status quo is untenable: It’s frustrating to taxpayers, it’s frustrating to our employees and it’s frustrating to me,” he wrote in a 2021 Washington Post opinion piece. He said the IRS can clear the backlog by the end of this year.
Rettig’s been under fire after New York Times revelations that ex-FBI director James Comey and former deputy director Andrew McCabe were both audited in the wake of messy departures from the Trump administration. The IRS insists it does not engage in politically motivated audits.
The potential for $80 billion is very good to hear, said Janet Holtzblatt, senior fellow at the Tax Policy Center. Still, she added, there’s nothing in the proposed legislation that would stop lawmakers from doling out less to the IRS annually knowing that the supplemental money from the Inflation Reduction Act was coming.
So far, House of Representatives and Senate lawmakers in appropriation subcommittees have called for the IRS to get $13.6 billion next fiscal year, which would be a $1 billion increase from this year.
If the extra $80 billion goes through, it’s worth remembering that regular taxpayers might be getting extra help and services via the money that comes for operations and modernized infrastructure, Holtzblatt and Olson both said. The bill requires the IRS to explain its spending plans and provide updates by certain points, Holtzblatt noted.
The IRS knows it needs to do better engaging with taxpayers and easing their frustrations, Holtzblatt said. Besides, it’s in the agency’s interest as a tax collector to easily explain tax rules, she noted. “Compliance comes from minimizing both intentional errors and unintentional errors,” Holtzblatt said.
Baer acknowledges IRS staff and administration have been trying their best under difficult circumstances. Still, his experience showed him the deep difficulties getting easy answers to basic questions about the status of tax refund money the government owed to him and his wife. “Something is broken badly,” he said.
When Baer considers what more funding could be done for the IRS, he’s trying to stay open-minded. “I would love to believe that it will get better, but I’m going to reserve judgment for now,” he said.
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