WASHINGTON — The IRS has enhanced its services to taxpayers thanks to support from the Democrats’ Inflation Reduction Act, despite continuing challenges with claims stemming from a tax credit effort related to the COVID-19 pandemic. An independent review released on Wednesday highlights these issues, noting slow resolutions for various identity theft cases.
For the first time since she assumed her role as National Taxpayer Advocate in 2020, Erin M. Collins expressed optimism in her annual report to Congress for 2024. She remarked, “The taxpayer experience has noticeably improved,” acknowledging the significant progress facilitated by substantial multiyear funding. Nevertheless, she cautioned that service from the IRS is still not ideal.
There are ongoing shortcomings, particularly regarding the resolution of claims from nearly half a million taxpayers who have been victims of identity theft. The average waiting period for these claims has escalated, increasing from 19 months in 2023 to 22 months in 2024.
Additionally, the report highlights significant delays in resolving Employee Retention Credit (ERC) claims submitted by businesses that depend on these refunds for survival. The ERC was established to aid businesses in retaining staff during pandemic restrictions but has unfortunately attracted fraud due to its complicated eligibility criteria. This complexity has enabled scammers to exploit small businesses, often charging fees for assistance even when they do not meet the requirements for the credit.
In September 2023, the IRS decided to halt the acceptance of ERC claims until 2024, driven by reports of fraudulent applications surging. Collins noted that, despite the IRS processing numerous claims in recent months, there remained a backlog of approximately 1.2 million claims as of October 26, 2024, with many cases unresolved for over a year.
IRS Commissioner Daniel Werfel remarked that the agency is seeing “positive trends” in taxpayer service but identifies identity theft as the most pressing issue. He indicated that there has been a rise in theft cases compared to pre-pandemic times due to the growing prevalence of online scams.
To tackle these issues, Werfel stated that efforts are being made to allocate more resources and streamline identity theft cases by categorizing them as either complex or straightforward, allowing the IRS to address taxpayer concerns more swiftly.
Collins has also recommended that Congress increase the jurisdiction of the U.S. Tax Court to address more refund cases and bolster the Low-Income Taxpayer Clinic program to provide better support for taxpayers. She emphasized the importance of the IRS processing claims efficiently and timely.
Despite the improvements in service, funded largely by multiyear appropriations from Congress, Collins warns that such funding could be jeopardized. Initially, the IRS received an $80 billion boost from the Inflation Reduction Act, but agreements in 2023 between Republicans and Biden’s administration led to a $1.4 billion cut and an additional plan to reduce the IRS budget by $20 billion over the next two years for allocation to other nondefense programs.
Treasury officials are urging Congress to release another $20 billion intended for IRS enforcement that remains trapped in bureaucratic language. Werfel noted the critical role this budget increase has played in enhancing taxpayer services, asserting, “We’ve put the money to good use.”
Should Congress decide to reduce funding from the Inflation Reduction Act, Collins emphasizes that cuts should not adversely affect taxpayer services or the IRS’s technology infrastructure, advocating against “inadvertently throwing out the baby with the bathwater.”
