How to fix the IRS and its monster backlog: 4 ideas to consider
Less than 20% of the 120M calls made to the agency in 2021 were answered
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Tax filing season isn’t just crunch time for taxpayers, it’s also a busy time for the Internal Revenue Service (IRS).
The agency carried over into 2022 a backlog of 6 million unprocessed individual returns, 2.3 million amended individual returns, 1 million unprocessed employment tax returns, and half a million amended employment tax returns — on top of the 2022 tax season’s responsibilities. To wit, fewer than 20% of the 120 million calls made to the agency last year were answered.
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Internal Revenue Service Commissioner Charles Rettig. (Tom Williams-Pool/Getty Images / Getty Images)
IRS Commissioner Charles Rettig recently authored an op-ed describing the situation, making the case for a larger IRS staff to deal with the situation. Expanded staffing would certainly help the current problem, but the core reasons behind why the IRS is so overwhelmed still remain. To address those bigger issues, the IRS needs to upgrade its information technology (IT) infrastructure, and policymakers need to stop leaning on the IRS to administer social benefits.
1) IRS INTERNAL TECHNOLOGY IS WOEFULLY OUTDATED
The IRS’s computing capacity is egregiously behind the times. Our work laptops and personal phones seem to receive updates weekly. But the IRS’s Individual Master File, the primary system for processing individual tax account data, was developed in the 1960s. The Taxpayer Advocate Service (an office within the IRS devoted to taxpayers’ interests) has long beaten the drum for improving the agency’s IT because out-of-date technology hurts both tax filers and tax collectors.
2) NEED MORE PROGRAMS SUCH AS RRP
The IT investments the IRS has made have paid off, improving taxpayer experience and tax collection operations. The Return Review Program (RRP) was first introduced as a pilot program in 2014 to replace the IRS’s old fraud identification software. The program raised more than $6.5 billion from January 2015 to November 2017 with an annual budget of just $100 million. By better targeting the IRS’s audit operations, programs like RRP can help reduce fraud and raise revenue with less undue scrutiny on law-abiding taxpayers.
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3) DELEGATE SOME IRS DUTIES TO OTHER AGENCIES
Another key component of fixing the IRS can be achieved by narrowing the scope of responsibilities the agency has been tasked with overseeing.
The U.S. relies on the agency to distribute a large portion of its safety net programs. The mission of the IRS, however, is to raise revenue, not to administer social benefits. Requiring the IRS to oversee health care, education, family, energy, and work-related tax benefits leads to confusion, adding to the unacceptable backlogs taxpayers are dealing with today.
For instance, the Earned Income Tax Credit (EITC) has a notoriously high error rate largely due to its complexity. In 2018, the IRS estimated that roughly 25% of the $73.6 billion in EITC claims were improper.
4) SHIFT ADMINISTRATION OF SOCIAL SERVICE PROGRAMS
Relying on the tax system to deliver social spending also has downsides for recipients. In most years, families benefit from credits like the EITC and CTC when they file their taxes, receiving their aid in an annual lump-sum payment, rather than monthly payments. For a cash-strapped family, tax season often can’t come fast enough. Last year, the temporarily expanded CTC passed in the American Rescue Plan was partly paid in monthly installments, a change to better match payments with people’s needs but a difficult policy for the IRS to administer efficiently.
Policymakers from across the ideological spectrum have expressed interest in replacing the CTC with a child allowance administered by the Social Security Administration — Sen. Mitt Romney, R-Utah, has sponsored a bill, as have Reps. Rashida Tlaib, D-Mich., and Mondaire Jones, D-N.Y. Some progressive commentators have likewise acknowledged the superiority of moving a child benefit outside the tax code, as the Child Tax Credit often fails to reach the poorest children.
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Ultimately, while hiring more staff would help in the current crisis, policymakers must think long-term. Congress needs to invest in critical IT upgrades and stop tasking the IRS with administering complex social programs.
Alex Muresianu is a federal policy analyst at the Tax Foundation, and he can be found on Twitter @ahardtospell.