The taxpayer experience this year 'vastly improved' compared with 2022, report finds

The recent tax season was relatively smooth compared with last year’s. But national taxpayer advocate Erin Collins still sees room for improvement as the IRS rolls out funding plan changes.

“Overall, the difference between the 2022 filing season and the 2023 filing season was like night and day,” Collins wrote in her midyear report to Congress. This year, taxpayer experience “vastly improved” compared with 2022, she said.

As of April 22, the backlog of original paper returns dropped from 13.3 million to 2.6 million, refunds generally arrived more quickly and customer service improved on key phone lines, according to the report.

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However, the agency has lingering problems, including a pileup of amended returns and taxpayer correspondence, Collins wrote. The reduction of amended returns — which require manual processing — declined by only 6% from April 2022 to April 2023.

Many amended business return delays are because of the so-called employee retention credit, a complicated pandemic-era tax break the IRS is targeting for inaccurate and fraudulent claims. As of March 3, more than 866,000 companies claimed and received the credit, totaling over $152.6 billion, according to the latest IRS Data Book.

Collins also shared recommendations related to the IRS’ Inflation Reduction Act spending, emphasizing the need for improved taxpayer service and technology. 

“To achieve and sustain transformational improvement over the longer term, the IRS must focus like a laser beam on IT,” she wrote, citing the importance of “robust online accounts,” e-filing for all returns, faster relief for identity fraud victims and modernizing agency systems.  

Prior to recent funding cuts, the original $79.6 billion plan allocated only $3.2 billion for taxpayer service and $4.8 billion for business systems modernization. The remaining funding was earmarked for enforcement and operations support.

“If they can fix their IT and the service piece, we’ll need less on the enforcement side,” Collins said in early June, speaking at the American Institute of Certified Public Accountants’ annual conference.

Although the debt ceiling deal slashed $21.4 billion of IRS funding from the original $79.6 billion, the White House said they didn’t expect the budget cuts to fundamentally change the IRS’ plans. 

Still, there are funding concerns, depending on budget priorities for future administrations.

“With adequate funding, leadership prioritization and appropriate oversight from Congress, I believe the IRS will make considerable progress in the next three to five years in helping taxpayers comply with their tax obligations as painlessly as possible,” Collins wrote in the midyear report.