Although 2023 was a year of transition for the IRS and taxpayers, National Taxpayer Advocate Erin Collins has reason to be more optimistic for 2024.

“For the first time since I began serving as the National Taxpayer Advocate in March 2020, discussions about improving the taxpayer experience and modernizing the IRS’s information technology systems do not seem like merely wishful thinking,”” Collins wrote in the 2023 annual NTA report to Congress, released on January 10, 2024. “Realistically, however, the IRS has a tall mountain to climb to achieve its goals of rebuilding the agency, modernizing its systems, and providing the quality service taxpayers deserve.”

The report highlighted two major areas of success:

• eliminating the backlog of about 17 million paper-filed Forms 1040; and
• answering a much higher percentage of taxpayer telephone calls.

2024 Challenges

Despite the improvements seen in 2023, Collins still anticipates challenges with paper processing of tax returns and taxpayer correspondence moving into 2024.

Notably, the IRS has not been as successful in eliminating its backlog of individual amended tax returns (Forms 1040-X), business amended tax returns, or correspondence. Those backlogs remain at more than double their pre-pandemic levels, which means ongoing processing and refund delays.

Processing of Employee Retention Credit (ERC) claims was also cited as a challenge. As of early December, the IRS had a backlog of approximately one million ERC claims.

The report also notes “unconscionable delays”in assisting victims of tax-related identity theft. Victims of identity theft have to wait more than a year and a half for the IRS to resolve their cases and receive the monies they are owed, Collins wrote.“If it weren’t for the significant number of challenges affecting larger groups of taxpayers, this would be headline news, and it should be.”

Additionally, while there was marked improvement in answering telephone calls in 2023, Collins points out that the metrics used to determine success“are highly technical and don’t present a complete picture of what taxpayers – or tax professionals – experience.”

Recommendations

The report also makes a number of recommendations both to the IRS and legislative recommendations to strengthen taxpayer rights and improve tax administration.

Most significantly, Collins highlights the importance of prioritizing the improvement of online accounts to make them comparable to private financial institutions. With just over 10% of individual taxpayers utilizing online accounts, an effort must be made to improve accessibility and functionality. It was also recommended that the IRS do a better job of promoting the accounts.

As the report notes,“Of all the steps the IRS can take to improve the taxpayer experience, creating robust online accounts has the potential to be the most transformational and should receive the highest priority.”

Collins also recommends several IRS employee-related items, including hiring and retaining qualified employees and providing improved training opportunities for all employees. On the IT front, she also recommended improvements to the “Document Upload Tool”to fully automate the processing of IRS correspondence. Also, there was a call to enable all taxpayers to e-file their tax returns.

The report also recommends that the IRS offer first-time penalty abatement for international information return penalties, noting that many of these reporting requirements are obscure and complex.

Among the legislative recommendations are requiring the IRS to timely process claims for credit or refund; establish minimum standards for paid tax return preparers; revoke identification numbers of sanctioned preparers; expand the U.S. Tax Court’s jurisdiction to adjudicate refund cases; extending the “reasonable cause” defense for the failure-to-file penalty to taxpayers who rely on return preparers; and expanding the Low Income Taxpayer Clinic (LITC) program.

By Catherine S. Agdeppa, Content Management Analyst