National Taxpayer Advocate (NTA) Erin M. Collins today released her 2020 Annual Report to Congress, focusing on the unprecedented challenges taxpayers faced in filing their tax returns and receiving refunds and stimulus payments during a year consumed by the COVID-19 pandemic. The report also finds that a roughly 20 percent inflation-adjusted reduction in the IRS’s budget since fiscal year (FY) 2010 has left the agency with antiquated technology and inadequate staffing levels to meet taxpayers’ needs.
As part of the report, Collins released the fourth edition of the National Taxpayer Advocate’s “Purple Book,” a compilation of 66 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.
“During 2020, the COVID-19 pandemic affected almost all facets of our lives, and U.S. tax administration was no exception,” Collins said. “Taxpayers could not meet in person with their tax return preparers. IRS personnel who open and process tax returns and answer the toll-free telephone lines had to follow social distancing guidelines and stay-at-home orders, limiting their ability to assist taxpayers. And Congress assigned the IRS the task of issuing two rounds of stimulus payments, stretching its resources even further.”
The 2020 Filing Season and Economic Impact Payments
The report says the IRS in most cases “can effectively handle whatever it can automate,” and as a result, most taxpayers were well served. As of November 20, 2020, the IRS had received about 169 million individual income tax returns, including about 8.4 million that were filed solely to claim stimulus payments (referred to by the IRS as “economic impact payments” or “EIPs”). About 90 percent of returns were e-filed and therefore were not delayed by the pandemic. Similarly, the overwhelming majority of EIPs were issued by direct deposit or automated mailings and were successfully and timely transmitted.
However, the report says millions of taxpayers experienced major problems, including the following:
- Refund delays due to COVID-19 processing backlogs.
- Refund delays due to IRS fraud detection filters.
- EIP underpayments.
- Late notices.
- Lack of information about backlogs, notices, and other problems.
Inadequate Funding Is the Source of Many Taxpayer Problems
By statute, the National Taxpayer Advocate is required to identify the ten most serious problems encountered by taxpayers. In her preface to the report, Collins wrote: “If this year’s Most Serious Problems are read in combination, one overriding theme emerges: To improve taxpayer service, the IRS needs more resources to hire employees and more resources to modernize its information technology (IT) systems.”
Among the Most Serious Problems are the following:
- Insufficient employee hiring and retention.
- Inadequate telephone and in-person taxpayer service.
- Limited functionality of online taxpayer accounts.
- Antiquated information technology.
The report says a common link among these taxpayer problems is inadequate funding to allow the IRS to administer the tax system as well as it could. “The IRS is the accounts receivable department of the federal government,” Collins wrote. “In FY 2020, it collected about $3.5 trillion on a budget of about $11.51 billion, producing a remarkable return on investment of more than 300:1. For this reason, it is economically irrational to underfund the IRS.”
National Taxpayer Advocate “Purple Book” of Legislative Recommendations
The National Taxpayer Advocate’s 2021 Purple Book proposes 66 legislative recommendations for consideration by Congress, including the following:
- Authorize the IRS to establish minimum standards for tax return preparers.
- Expand the U.S. Tax Court’s jurisdiction to hear refund cases.
- Restructure the Earned Income Tax Credit (EITC) to make it simpler for taxpayers and reduce improper payments.
- Increase the annual award cap for Low Income Taxpayer Clinics (LITCs).
- Require taxpayer consent before allowing IRS Counsel or Compliance personnel to participate in IRS Independent Office of Appeals conferences.
- Clarify that taxpayers may raise innocent spouse relief as a defense in collection proceedings and bankruptcy cases.
- Clarify that the National Taxpayer Advocate may hire independent legal counsel.
In addition, TAS has recently released an Online Digital Roadmap Tool that will assist taxpayers with navigating the complexity of the tax system. By entering a notice or letter number, taxpayers can determine where they are on the roadmap, why they received the notice or letter, what rights they have, what they must do next, and where they can get additional help.