Prologue: Introductory Remarks by the National Taxpayer Advocate 2021

Section 7803(c)(2)(B)(ii) of the Internal Revenue Code requires the National Taxpayer Advocate to submit this report each year and in it, among other things, to identify the ten most serious problems encountered by taxpayers and make administrative and legislative recommendations to mitigate those problems. In each of the ten Most Serious Problem discussions in this report, we are including an IRS narrative response. Our intent is to help readers see both TAS’s perspective and the IRS’s perspective on the source and nature of key challenges and potential solutions.

Preface

The year 2021 provided no shortage of taxpayer problems. As I stated in my Fiscal Year 2022 Objectives Report, this past year and the 2021 filing season conjure up every possible cliché for taxpayers, tax professionals, the IRS, and its employees – it was a perfect storm; it was the best of times and the worst of times; patience is a virtue; with experience comes wisdom and with wisdom comes experience; out of the ashes we rise; and we experienced historical highs and lows. Calendar year 2021 was surely the most challenging year taxpayers and tax professionals have ever experienced – long processing and refund delays, difficulty reaching the IRS by phone, correspondence that went unprocessed for many months, collection notices issued while taxpayer correspondence was awaiting processing, limited or no information on the Where’s My Refund? tool for delayed returns, and – for full disclosure – difficulty obtaining timely assistance from TAS.

The IRS Deserves Credit for Playing the Hand It Was Dealt

One irony of the past year is that, despite its challenges, the IRS performed well under the circumstances. The imbalance between the IRS’s workload and its resources has never been greater. On the workload side, the number of individual taxpayers the IRS serves has increased by about 19 percent since 2010, as the number of Form 1040 series returns rose from about 142 million in that year to about 169 million in 2021. While there is no perfect measure of the IRS’s workload, return filings are a good approximation because most IRS work – including fraud screening, telephone calls, audits, collection actions, TAS cases, Appeals cases, Tax Court cases, and other downstream consequences – keys off the number of taxpayers filing returns. During the last 18 months, Congress charged the IRS with administering several COVID-19 pandemic financial relief programs, including three rounds of stimulus payments (also known as Economic Impact Payments), monthly payments of the Advance Child Tax Credit (AdvCTC), reduction of the taxability of unemployment compensation in the middle of the 2021 filing season, and other provisions directly impacting tax administration. Each financial relief program consumed considerable IRS resources to administer, including overall planning, information technology (IT) programming, implementation, public communications, and responding to taxpayers’ questions and account issues. To address these needs, the IRS had to reallocate resources from its core tax administration responsibilities.

Over the last decade, examination coverage has decreased, enforcement efforts have been negatively impacted, and the Level of Service has continued to drop as the IRS’s workforce and budget have declined. On the resources side, the IRS’s baseline budget has been reduced by about 20 percent on an inflation-adjusted basis since fiscal year (FY) 2010, and its workforce has shrunk by about 17 percent. Although Congress provided supplemental funding to help the IRS implement pandemic-relief programs, it is not feasible for an agency the size of the IRS to staff up and train new employees quickly. The IRS also is limited in its ability to hire new employees when funding is provided on a one-time basis because there is no assurance it will have sufficient funding in future years to retain those employees. In addition, the social distancing required during the pandemic forced the agency to close or limit staffing in processing centers where employees work in close quarters, further restricting its production capacity.

Despite its limitations, the IRS processed most e-filed tax returns timely, it issued 130 million refunds totaling $365 billion, it issued 478 million stimulus payments totaling $812 billion, and it sent AdvCTC payments to over 36 million families that totaled over $93 billion. The IRS’s leadership and workforce deserve considerable credit for their accomplishments.

Yet 2021 Was the Most Challenging Year Ever for Taxpayers

There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous.

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Taxpayer Rights and Service Assessment: IRS Performance Measures and Data Relating to Taxpayer Rights and Service

The Taxpayer Rights and Service Assessment has provided the IRS, Congress, and other stakeholders with a “report card” to measure how the agency is doing in protecting and furthering taxpayer rights and service while driving voluntary compliance. The Taxpayer First Act (TFA), passed in 2019, requires the IRS to include in its written comprehensive customer service strategy “identified metrics and benchmarks for quantitatively measuring the progress of the Internal Revenue Service in implementing such strategy.” Taxpayer customer service and taxpayer rights are inextricably linked, as evidenced by the right to quality service. The Taxpayer Rights Assessment will allow the IRS to identify areas where it must improve and measure the success of specific changes by comparing data before and after implementing the new customer service strategy. TAS looks forward to working with the IRS on the TFA implementation and future measures.

At a Glance

For each of the ten Most Serious Problems we identify in this report, At a Glance summarizes what taxpayers want from the IRS, explains why the problem is serious, and provides some key statistics. The section “what taxpayers want from the IRS” comes directly from an IRS survey about taxpayer attitudes and preferences. The goal is to give the reader the ability to quickly glance over the material and grasp some of the impediments that must be overcome to improve service to taxpayers.

Highlights of TAS Successes Throughout the Past Year

To improve transparency regarding TAS’s advocacy activities, we include Highlights of TAS Successes Throughout the Past Year to spotlight some of TAS’s accomplishments.

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