Taxpayer Advocate Releases 2020 Report to Congress
National Taxpayer Advocate Erin M. Collins recently released the 2020 Annual Report to Congress (the “Report”), which focuses 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 identifies and discusses the IRS’ insufficient employee hiring and retention, limited functionality of online taxpayer accounts, and antiquated information technology as some of the most serious issues facing taxpayers and tax professionals. Also included in the report is the 2021 Purple Book, which proposes 66 legislative recommendations designed to strengthen taxpayer rights and improve tax administration, the most litigated issues from the prior year, and much more.
Some of the highlights from the Report include:
- The IRS’ inability to timely open and process the paper-filed tax returns it received. Although 91 percent of all individual income tax returns were electronically filed, the 16 million paper-filed returns were still vast in number and the IRS was unable to open and process them in a timely fashion. As of the end of December 2020, the IRS stated that there were still 6.9 million unprocessed individual income tax returns, many of which had been filed on or before April 15, more than seven months earlier. The same was true of business returns, of which the IRS reported there were 2.3 million remaining at the end of November that were still unprocessed months after filing.
- The IRS’ fraud detection system, with its high false positive rates, caused many issues for taxpayers claiming refunds. Each year, all returns claiming refunds are passed through filters designed to detect fraudulent wage or identity theft-based claims. For many years, the filters have generated high false positive rates, leading to refund delays for those returns flagged. The problem was compounded in 2020 because the IRS notifies taxpayers of refund holds by written correspondence, and the IRS was delayed both in sending notices and in processing taxpayer responses. Overall, the IRS’s fraud filters flagged 5.2 million returns claiming refunds. For about 25 percent of the returns flagged for income verification, refunds took longer than 56 days. For about 18 percent of the returns flagged for identity verification, refunds took longer than 120 days.
- Millions of taxpayers received late notices bearing dates that had passed and, in many cases, response deadlines that also had passed. During the time when crucial IRS functions were shut down last spring, the IRS automatically generated more than 31.2 million notices. By the time the IRS was ready to mail them, the dates on the notices had passed, some by several months, and some notices included response deadlines that also had passed. Nevertheless, the IRS mailed 18.9 million of these notices. The IRS included an “insert” with about 1.8 million, or 10% of the notice, because it needed to give taxpayers an extension of time to act. However, the IRS failed to include these inserts with most notices that should have contained them and had to issue supplemental letters informing affected taxpayers of additional extensions. The situation continued to persist long after the IRS resumed many of its operations, and during November 2020, the IRS was unable to timely mail out over 11 million additional notices after they were automatically generated.
The Report also contains statistics regarding the numbers of returns filed, IRS’ collection and examination activities, the calls to the IRS – totaling over 100,000,000 in 2020, and other statistics on the IRS’ operations.