From refund delays and aging technology to confusing audit letters, here are the top 10 challenges filers face this year, according to the report:
1. Customer service
The IRS received roughly 100 million telephone calls in fiscal-year 2019, and customer service representatives answered just 29% of them, the report said. The solution? Congress needs to provide the necessary funding to the IRS for adequate staffing and a budget needed to provide better customer experience, the report said.
2. Aging technology
The IRS estimates that its current multi-year plan to improve its technology infrastructure will cost about $2.3 billion to $2.7 billion. The plan, if rolled out fully, would make the tax agency more efficient, the report said, but its success depends on the additional funding it receives. The IRS has spent $289.7 million implementing its plan in fiscal 2019. But the National Taxpayer Advocate says the IRS must have the funding to succeed.
The IRS faces a shrinking budget. Its workforce has fallen, which has increased the workload for employees. The agency’s budget was cut by 20.4% between the 2010 and 2019 fiscal years, and the number of employees fell by more than 20% in that period.
4. Refund delays
The IRS has designed filters to prevent refund fraud, but they have delayed taxpayer refunds for legitimately filed returns, which could potentially cause financial hardship for some filers. The false-positive rates have been as high as 71%, the report said.
5. Free File frustrations
The IRS partners with Free File, a group of private-sector tax preparation providers, to offer free federal tax preparation software through IRS.gov to about 105 million eligible taxpayers. The rate of e-filing approached 90% for individual returns in the 2018 tax year, but less than 2% of them were filed using Free File software products, largely due to taxpayers’ dissatisfaction with the software, the report said.
6. Untrained preparers
The filing industry’s evolution has made it easier for untrained preparers to enter into the business without having knowledge of tax law, according to the report. Attorneys and certified public accountants are required to pass exams and satisfy education requirements. But there are currently no licensing requirements for federal unenrolled tax return preparers. More than 80 million individual tax returns were prepared by return preparers in the 2018 tax year.
7. Appeals process
The IRS’s Office of Appeals, which formed in 1927, aims to resolve disputes without litigation. The appeals office, however, includes its counsel and compliance teams in some conferences whether or not taxpayers consent. Appeals officers may have difficulty drawing independent conclusions that vary from positions that are advocated by the compliance teams, which undermines an independent appeals process for taxpayers, the National Tax Payer Advocate cautions.
8. Few multilingual notices
Federal agencies are required to implement a system that allows Americans with limited English proficiency access services. Still, those taxpayers frequently don’t receive IRS notices in their preferred languages, the report says. The IRS only translates some important notices into Spanish and none into languages other than English or Spanish.
9. Confusing audit letters
The IRS used a combination letter, which includes an initial contact letter and a 30-day notice, in roughly 16% of its audits during the 2015 to 2019 fiscal years. That’s insufficient time for filers to provide documentation and resolve questions, the report says.
10. Settling tax debts
The IRS’s “offer in compromise” program allows taxpayers to settle debt for less than the full amount they owe, a favorable option for those who can’t pay their full tax liability. The program, however, falls short of Congress’s expectations, the report says. The National Taxpayer Advocate urged the agency to adopt a more liberal acceptance policy to provide an incentive for taxpayers to file returns and pay taxes.