Tax Season Looms Large

February 2, 2022

Anticipation of a fraught tax season is leading Democrats to consider more funding for the IRS to assist and educate taxpayers. Meanwhile, more than 200 lawmakers are pushing the IRS to give taxpayers a break on penalties they’re racking up because of mail delays at the agency, just days after the start of a tax filing season that officials warned could be marred by difficulties.

While Democrats have focused heavily on ramping up enforcement to bring in more tax dollars, another filing period complicated by the COVID-19 pandemic, new tax breaks meant to provide relief from the crisis and a lengthy backlog of unprocessed returns are putting the spotlight on years of stagnant funding for taxpayer services.

Democrats proposed an infusion of $80 billion in extra funding for the IRS over the next decade — including almost $3.2 billion for taxpayer services in the Senate version of their sweeping—but delayed—budget reconciliation bill.

That leaves delayed fiscal 2022 appropriations as likely the fastest and surest way to infuse the department with more cash as lawmakers work across the aisle toward an omnibus spending bill. They are aiming to finish before temporary government funding runs out Feb. 18, though another short-term stopgap bill may be necessary.

Sen. Chris Van Hollen (D-Md.), who leads the Senate Appropriations subcommittee responsible for the IRS budget, said the panel is considering funding for the agency above the $13.6 billion panel Democrats proposed in October. The IRS had a backlog of more than 11.8 million unprocessed tax returns and 4.75 million pieces of taxpayer correspondence as of mid-December, according to the National Taxpayer Advocate’s Jan. 12 report.

IRS staffing has fallen by about 17 percent since fiscal 2010 while the number of individual and business tax returns climbed by 13 percent, according to the report. Treasury officials have said the pandemic closed facilities, caused staff to take leave from their jobs and spurred new aid programs like advance monthly child tax credits and relief checks that put a bigger burden on the IRS.

The House Appropriations Committee approved a fiscal 2022 Financial Services spending bill last summer that would have devoted $13.6 billion to the IRS, a 14 percent increase from the 2021 enacted funding level. That is in line with Senate Democrats’ October bill and President Joe Biden’s budget request.

It is unclear if Republicans would get on board with that level of funding, however. Top Senate Republican appropriator Richard C. Shelby (R-Ala.) described the boost as among “partisan ‘reforms’” in the Democrats’ proposal, and other Republican lawmakers have questioned whether the backlog and customer service issues are really due to IRS funding levels.

Hiring, building better online systems and other improvements the IRS could spend money on take time, so it is likely too late to fully fix this tax season with funding. There is bipartisan support for some actions the IRS could take as a more immediate salve.

Sens. Bob Menendez (D-N.J.), and Bill Cassidy (R-La.) along with 23 Democrats and two Republicans urged in a letter to the IRS to consider steps including: a pause on automated collections of unpaid taxes; dropping fines for taxpayers who paid at least 70 percent of what they owed for the 2020 and 2021 tax years; expedited processing for amended tax returns; and smoothing the process for taxpayers challenging a penalty.

House Ways and Means members Linda T. Sánchez (D-Calif.), and Darin LaHood (R-Ill.), led a near-identical letter with 191 House signatories. Specifically, the lawmakers’ recommendations include halting automated penalty collections from now until at least 90 days after April 18, this year’s filing deadline for most individual income tax returns.

The lawmakers also want the IRS to:

  • Delay collection of penalties from people waiting for the agency to process active and pending penalty abatement requests.
  • Streamline the process for taxpayers affected by the pandemic to show reasonable cause for penalty abatement, without the need for written correspondence.
  • Lift penalties for taxpayers who paid at least 70 percent of taxes they owed each of the past two years.
  • Speed up processing of amended returns.
  • More quickly answer inquiries from congressional caseworkers and the Taxpayer Advocate Service.

The Taxpayer Advocate Service (TAS), a division of the IRS meant to help filers solve their individual problems, is overloaded with requests and is no longer accepting cases that only deal with processing amended returns. TAS has also stopped taking referrals from congressional district offices, congressional aides have said.

IRS Commissioner Charles Rettig and Treasury Department officials have said they have no current plans to extend the filing deadline past April 18, though the IRS has lengthened the past two tax filing seasons due to the pandemic.