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Biden’s pick for IRS commissioner would face backlog of tax returns while gearing up for next filing season

<i>Luke Sharrett/Bloomberg/Getty Images</i><br/>The Internal Revenue Service is still working its way through a backlog of tax returns.
Bloomberg via Getty Images
Luke Sharrett/Bloomberg/Getty Images
The Internal Revenue Service is still working its way through a backlog of tax returns.

By Tami Luhby, CNN

Even though the Internal Revenue Service has been steadily chipping away at its major backlog of tax filings, millions of individuals and businesses are still waiting for their tax returns to be fully processed and their refunds to be sent.

Dealing with this mountain of paperwork, as well as deploying the nearly $80 billion that Congress gave the agency earlier this year, could fall to Daniel Werfel, whom President Joe Biden nominated last month to be the next IRS commissioner.

Werfel, whose Senate confirmation hearing has yet to be scheduled, is no stranger to turmoil at the IRS. He served as acting commissioner for seven months in 2013 after his predecessor was forced to resign following the revelation that the agency targeted conservative groups seeking tax-exempt status for extra scrutiny.

Prior to joining the IRS, Werfel worked for nearly 16 years at the White House’s Office of Management and Budget, serving as deputy controller and then federal controller. After leaving the government, he joined Boston Consulting Group, where he is a managing director and partner on the federal and public sector teams.

“The management challenges are significant, both spending the money efficiently and wisely,” said John Koskinen, who served as IRS commissioner from 2013 to 2017. “It’ll be an interesting, but good challenge for him. I think he’s more than up to it.”

During his time at the IRS, Werfel responded to numerous congressional investigations, the White House noted when it announced his nomination.

If confirmed, he is expected to be called again to Capitol Hill. House Republicans, who will take charge of the chamber in January, plan to conduct multiple inquiries into the agency.

“Will he cooperate with congressional oversight efforts, such as the pending requests related to the continuing large tax return backlog, Child Tax Credit administration, and the agency’s suspicious solicitation of millions of additional tax credit claims right before an election, among many others?” Texas Rep. Kevin Brady, the Republican leader of the House Ways and Means Committee, said when Werfel was nominated.

Big backlog of returns

The Covid-19 pandemic wreaked havoc on the IRS, which closed its offices for several months in 2020. Millions of paper returns and correspondence piled up in trailers during the shutdown.

On top of that, Congress enacted several relief programs that were carried out by the agency in 2020 and 2021 — including three rounds of stimulus checks, a monthly child tax credit and an unemployment compensation exclusion — all of which added to the pressure on its staff.

The agency has devoted more resources to clearing the massive backlog of paper returns and is moving more quickly than it did a year ago, National Taxpayer Advocate Erin Collins said during a Tax Policy Center panel discussion last month. But the IRS is still not where she would like it to be.

There were still 3.2 million unprocessed individual returns as of November 25, according to the agency. Of these, 1.5 million are paper returns waiting to be reviewed and processed and 1.7 million are returns that require error correction or other special handling.

The IRS also has 800,000 unprocessed amended individual tax returns as of late November. It could take more than 20 weeks for the filings to be processed.

Those figures remain daunting with only a few weeks left before the agency shuts down its systems to prepare for the upcoming filing year. But they show the IRS is making progress. There were about 3 million individual paper returns and 1.3 million amended returns waiting to be processed as of October 21, Collins wrote in a blog post last month.

As for business returns, Collins found there were more than 4 million in need of initial processing as well as several hundred thousand amended returns as of October 21.

Plus, there are 6.3 million suspended returns, of which nearly 3 million were being reviewed for potential identity theft as of late October. And the agency has about 4.5 million pieces of correspondence awaiting processing.

The IRS does not provide updated processing figures for business returns, correspondence or all suspended returns online.

What’s more, the agency is only answering about one in 10 calls it receives. The rate was around 85% two decades ago.

The IRS said it intends to be “healthy” by the end of the year, Collins wrote, but she questioned how the agency defines “healthy.”

“Regardless of the IRS’ definition, none of the above taxpayers will see the IRS as ‘healthy’ until their return is worked,” she wrote.

The IRS did not respond to requests for comment.

Hiring more staffers

The backlog stems in part from cuts to the agency’s budget and staffing levels over the past decade. The budget is down more than 15%, after adjusting for inflation, and staffing has shrunk to 1970s levels, former Commissioner Charles Rettig told a Senate committee earlier this year.

The agency is already deploying part of the $80 billion in funding that it will receive over 10 years from the Democrats’ Inflation Reduction Act, which passed this summer.

In October, the IRS announced it had hired 4,000 customer service representatives to answer phones and provide other taxpayer assistance. It said it intends to hire another 1,000 staffers by the end of the year.

Many will be in place at the start of the 2023 tax season, and nearly all will be trained by Presidents’ Day in February, which is traditionally when the agency sees the highest call volumes.

The IRS expects the phones to be answered at a much higher rate this upcoming season, the agency said.

In addition, the IRS is looking to hire 700 people for its Taxpayer Assistance Centers across the country. It will be the first time in a decade that its more than 270 walk-in sites will be properly staffed, the agency said.

While the upcoming tax filing season should be better than the last two, there are reasons for concern, said Larry Gray, national government liaison for the National Association of Tax Professionals. Since the new employees will still be learning, he questioned whether they will be as accurate or be able to answer questions as quickly as those with a few years under their belts.

Plus, training the new hires is pulling experienced staffers away from processing the backlog.

“We are moving in a direction to better,” said Gray. But “if you think the backlog is going to be gone, you are waking up in a dream.”

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