Issue #132: The IRS is kind of imploding right now

February 23, 2022 • Issue #132

Hi y’all —

To borrow a line from The Good Place’s Eleanor Shellstrop, I am a messy bench who loves drama.

I don’t discriminate. Whether it’s hobby drama, celebrity drama, @sylvaniandrama, Bachelor Nation drama, Facebook group drama, book industry drama or apartment building drama… I eat it up. I’ll spend hours scouring old Instagram posts and TikTok comments to get to the bottom of a rumor. When the gossip is particularly juicy, sometimes I even go on PACER to pull case files.

I’m incorrigible, and that’s the tea.

That’s why what’s happening at the IRS right now is so fascinating to me. For a number of reasons, the agency is basically imploding — and given that it’s tax filing season, it’s about to become everyone’s problem. It’s wild: Politicians are getting angry at hearings, advocacy groups are demanding solutions, the commissioner is writing letters to everyone in Congress, and the IRS keeps putting up increasingly desperate statements on its website.
Chaos.

I’ve been doing my normal research to uncover the source of the drama, and I’ve decided to share it with you. What is going on at the IRS? Will it affect my taxes this year?

The issues largely stem from the fact that, at the same time Americans are beginning to file their 2021 tax returns — which are tricky enough for the agency to process due to pandemic policies like the stimulus checks and advance child tax credit payments — IRS staffers are frantically working to clear a massive backlog of old paperwork.

This is the third tax filing season that's taken place during the COVID-19 crisis, and the cracks are arguably starting to show for the overwhelmed, under-staffed IRS. According to a January report from the Taxpayer Advocate Service, the IRS was only able to answer 11% of the 282 million customer service calls it got in 2021. The Washington Post reports that there are still almost 24 million 2020 tax returns that need manual processing in order to move forward.

And, uh, that doesn’t bode well for 2022.

"I suspect the problems this year will only add to people’s frustration," Howard Gleckman, a senior fellow at the Urban Institute, tells me.

The most recent filing season statistics, which came out Friday, show that more than 26 million tax returns for 2021 have already been turned in, with nearly 9 million resulting in refunds. The IRS insists that this is proof the season is “off to a strong start,” but there’s a lot going on behind the scenes.

The IRS is publicly blaming its computers for the turmoil. The agency posted a statement on its website Jan. 27 explaining the situation and linking the backlog to the agency's inadequate funding and "outdated technological ecosystem."

"While we will make every effort to find improvements to help taxpayers, we will have to do so in the constraints of an outdated system, where a seemingly simple modification could run the risk of jeopardizing the overall operating system critical to the current tax season — and the more than 160 million returns we anticipate receiving," it read.

The backlog is so big in part because there aren't enough IRS employees to work on it, and the government can't seem to manage to find people to help. At a Feb. 8 House Ways and Means subcommittee hearing, National Taxpayer Advocate Erin Collins said the IRS wanted to hire 5,000 extra people but has filled fewer than 200 roles.

Low pay may be partially responsible. The base salary for many entry-level IRS employees is $24,749, leading Collins to remark that "in this economy, it is not surprising that the IRS is having difficulty finding enough suitable job applicants."

In the meantime, existing IRS staffers are getting moved around. Politico reported that 1,200 IRS workers were being temporarily reassigned in order to help clear the backlog as fast as possible.

In a statement, IRS Commissioner Chuck Rettig said the agency is in "all hands on deck" mode, "leaving nothing off the table for consideration to improve overall service." He sent a letter to the 500-plus members of Congress, as well, saying that the IRS has implemented mandatory overtime and is prepared to "rapidly adapt to changing circumstances, when appropriate to do so."

To its credit, the IRS is trying.

The agency said in January that it had stopped sending notices in situations "where we have credited taxpayers for payments but have no record of the tax return being filed." On Feb. 9, it suspended more letters, including CP80 (for unfiled tax returns) and CP501 (for balances due), among others, "to help avoid confusion for taxpayers and tax professionals."

It legally can't stop all notices, though. Collins also pointed out that the letters may, in fact, be helpful for taxpayers who owe money because interest could accrue and penalties could stack up.

But perhaps the most grave sign that the IRS is in trouble is that lawmakers are considering pausing audits.

During the hearing, Rep. Tom Rice, R-S.C., pointed to an editorial that proposed stopping audits for four months while the IRS gets back on its feet. Rice said this recommendation and others were worth consideration.

"That would be a serious action that could have a serious impact on the agency," he added. "But in the end, I think this type of drastic action should be considered to mitigate this problem. That's how serious the current crisis is."

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

The IRS is The Bad Place right now due to a colossal backlog of paperwork, outdated computers, staffing shortages and more. It’s particularly rough timing because we’re heading into the thick of tax filing season. For consumers like me, that can translate into major tax refund delays and long wait times.

If I’m worried about this tax season, Gleckman says I should file early, accurately and electronically, and opt for direct deposit if I’m getting a refund.

Broadly, though, the outlook is bleak.

“There really is nothing the IRS can do to fix this year’s filing season beyond reallocating staff (which it already is doing),” he adds. “Other needed changes, such as improving IT, hiring more staff and modernizing workflow, will take years, and take more money that Congress has yet to provide.” So: more drama to come.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

Christine Chiu, a main cast member on the binge-worthy Netflix show Bling Empire, is allegedly looking to buy a castle in France. Her budget? Oh, just $11 million. Yes, that’s astounding, but tbh at this point I would pay her $11 million to release season two.

INTERNET GOLD

five things I'm loving online right now

1	Hostess is rolling out new caffeinated doughnuts, which is either the best or worst idea I’ve ever heard. They come in two flavors, chocolate mocha and caramel macchiato, and contain a little less caffeine than a standard cup of coffee. Anyway, if I spot these on my next 7-Eleven run I will buy no fewer than a dozen.
2	I will never make this beautiful vegetable tart because I’m trash (see: above excitement over caffeinated doughnuts), BUT I have watched the Food Network video of someone else doing it like 100 times. Sooo soothing.
3	A guy accidentally bought a super-rare Renaissance drawing by Albrecht Dürer drawing at an estate sale for $30 and, through a series of fortunate events, ended up connecting with an art history fan who recognized it as a gem. See the work, which may be worth $50 million, here.
4	I’m obsessed with this Twitter account, which is posting every single shot from the Star Wars movies, one by one, in chronological order. We’re on Episode II - Attack of the Clones right now.
5	If you’re not following Buddy the sable on Instagram, what are you even doing?

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

VIA DALE HANKS

This is Jasmine, a border collie mix who is a prime candidate for an IRS awwwdit. (Just look at that face!)

See you next week.
 

 
P.S. Are you having any trouble with the IRS? Have you filed your taxes yet? How much would you pay to live in a castle? Send tips to julia.glum@money.com or @SuperJulia on Twitter.

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