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IRS Chief Emphasizes Paper Backlog, Modernization Challenges in Progress Update

Tim Shaw  

Tim Shaw  

The IRS is feeling positive about its progress toward processing outstanding tax returns and modernizing agency systems, but sustained, multiyear funding is needed to serve taxpayers, Commissioner Chuck Rettig said March 21 at a Tax Executives Institute conference.

According to Rettig, the IRS is “trending in a really good direction” and on track to “get current” on its inventory of unprocessed returns by next January.

On March 15, President Joe Biden signed a $1.5 trillion omnibus spending bill that included a 6% increase to the IRS’s budget, $675 million more than allocated for fiscal 2021. “We have a plan” for how the IRS will move forward, Rettig said, advising conference attendees to “watch what happens with funding” for the agency.

Despite his optimism, the commissioner reiterated that the IRS has been underfunded for decades and “needs help.” While the funding increase is welcome, consistent support over the long term would enable the IRS to improve taxpayer service and compliance enforcement, Rettig said. The original funding proposal in the spending bill would have given the IRS a 14% boost, and Biden’s signature legislation, Build Back Better, would have provided the IRS $80 billion over the next decade.

Rettig attributed the ongoing backlog to the COVID-19 pandemic and the influx of mail over the past two years. “We are a paper-based organization operating in a digital world economy,” he said, pointing out that the agency’s six-year modernization plan is only 55% funded.

Modernized IRS systems would feature, among other things, an expansion of chat bot capabilities, Rettig told the TEI audience. Taxpayers receiving help online would free up customer service representatives to connect with callers, which failed to happen nearly 9 out of 10 times last year. But overhauling internal software doesn’t happen overnight. “You cannot radically improve IT infrastructure by starting and stopping” multiple times, Rettig said.

With too few employees to keep up with the growing pile of returns or to answer taxpayer questions—especially from those who had already filed before pandemic recovery packages were passed—the problems snowballed. Rettig said this isn’t the fault of IRS employees but rather the volume of their work.

Besides the pandemic itself, the timing of relief legislation also contributed to the strain on the IRS, according to Rettig. Major tax provisions, including several rounds of Economic Impact Payments (EIPs), were to be implemented as soon as possible. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; PL 116-136) of 2020 and the American Rescue Plan Act (ARPA; PL 117-2) in 2021 were enacted in the middle of tax seasons that saw drastic upticks in taxpayer correspondence.

“We owe you a modernized IRS,” Rettig said. “We owe you the ability to operate with us virtually as well as in person, at your discretion, not ours. We owe you the ability for us to operate through your eyes, not ours.”

 

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