As Tax Season Approaches, Late IRS Faces GOP Pressure to Eliminate It

As Tax Season Approaches, Late IRS Faces GOP Pressure to Eliminate It

As Tax Season Approaches, Late IRS Faces GOP Pressure to Eliminate It

The IRS is preparing for another tax season amid a host of challenges, according to a new report. Most pressing is the need to upgrade its “outdated” systems and hire more workers to provide better service, a watchdog group within the IRS has found. Yet the agency’s leadership also faces another test: fending off the latest attacks from Republican lawmakers, some of whom are pushing to abolish it altogether.

For taxpayers, meanwhile, the main issues, as always, are likely to be getting their refunds on time and reaching a human being at the IRS when they need help. And that too could prove difficult after three years of pandemic-induced delays and glitches, according to National Taxpayer Advocate Erin Collins, who released her annual report to Congress this week.

“Over the past three years, we’ve been through a period of ‘all COVID-19, all the time’ in tax administration, just as we have in our personal lives, communities, and jobs,” he said. she writes. “These challenges continued to have a significant impact on taxpayers in 2022 and will continue into 2023.”

“Sunlight” in front of you?

But there’s also good news, Collins said. For one, the IRS will start the current tax season with a smaller backlog than a year ago, though at 10 million unprocessed returns the agency still has a long way to catch up, according to his report.

“We began to see light at the end of the tunnel,” Collins wrote in the report. “I don’t know how long we have to travel before we see sunlight.”

Some relief may be in sight for taxpayers, as the Inflation Reduction Act (IRA) last year allocated $80 billion in new funds to the IRS to upgrade its technology and hire more workers, as well as to strengthen law enforcement against tax evaders. The idea is to improve IRS operations, while sniffing out new revenue from wealthy taxpayers who circumvent tax laws.

In an email, the IRS said it would “carefully review the annual report to Congress.”

He added, “While much work remains, the IRS is poised to deliver a better 2023 tax season to the nation with more taxpayer services, aided by much-needed new resources provided by law. on reducing inflation.

But that funding is now a target of GOP lawmakers, with House Republicans this week vote to cancel $72 billion of the $80 billion allocated to the IRS under the IRA.

On Tuesday, Rep. Earl L. “Buddy” Carter, a Republican from Georgia, introduced the Fair Tax Act, which would eliminate federal personal and corporate income tax, estate tax, and estate tax. wages – the latter funding both Social Security and Medicare. Under his bill, those taxes would be replaced with a 30% national consumption tax that would apply to all consumer purchases — health care, groceries, homes, gas and more.

And because much of the tax code would be eliminated, the bill would also abolish the IRS.

real problems

Granted, both bills have little hope of advancing given Democrats’ control of the Senate. But the efforts speak to the long-term political headwinds facing the IRS, which could have bigger ramifications for the agency if Republicans later take control of Congress.

Some Republican lawmakers continue to echo a claim that the $80 billion in new IRS funding would be used “to hire 87,000 new agents to target working families,” as Congressman Jason Smith, a Republican from Missouri who was selected this week as chairman of the powerful House Ways and Means Committee, said in a Jan. 9 statement.

These claims have been rejected by experts because misleading because much of the new IRS funding would be leveraged to hire customer service agents and tax experts who could help answer questions and speed up the agency’s processing of returns. New auditors would also be hired, but the Biden administration has said it will primarily focus its review on people earning $400,000 or more — not middle or working class Americans.

In the meantime, the IRS faces some very real, albeit largely internal, problems. The issues reported by the National Taxpayer Advocate relate to everyday headaches that taxpayers currently face, such as delayed refunds, unanswered calls to the IRS, and a confusing and difficult-to-use website.

Top 10 IRS Problems

In the new report, the National Taxpayer Advocate outlined the IRS’ 10 biggest problems, all of which can impact taxpayers every day.

Topping the list are processing delays, with millions of taxpayers seeing their returns caught in limbo. In some cases, the delays were due to the agency’s difficulty in coping with paper declarations, which must be manually entered into its computers. Identity theft victims, meanwhile, had a typical delay of a full year to receive their refunds, Collins wrote.

These delays have resulted in “widespread taxpayer frustration and financial hardship for both individuals and businesses for millions of taxpayers,” she noted.

However, Collins said the $80 billion in funding from the IRA could help the agency upgrade its technology and reduce processing time. For example, the bill earmarks $4.8 billion to upgrade the agency’s computer systems, which could be used to purchase scanning technology so paper returns don’t have to be entered by hand. .

Here are the top 10 issues, as outlined in Collins’ report:

  1. Delays the processing of tax returns.
  2. Complexity of the tax code: Collins said Byzantine laws create an “expensive and time-consuming” process for taxpayers.
  3. IRS Hiring and Training: The IRS budget has shrunk 15% over the past decade, resulting in staffing levels last seen in the 1970s and leading to a decline in service quality.
  4. Telephone and in-person service: Only 1 in 10 calls went to an IRS agent in fiscal year 2021.
  5. Online Access for Taxpayers and Tax Professionals: Collins said IRS websites lack functionality.
  6. Electronic File and Free File: The report notes that not all IRS forms are compatible with electronic filing, which means some taxpayers are forced to file returns on paper, causing processing delays.
  7. IRS Transparency: Collins criticizes the IRS for not providing taxpayers with basic information, such as why their refund was delayed.
  8. Tax preparer oversight: The report notes that taxpayers are frequently harmed by unaccredited tax preparers.
  9. Appeals: Taxpayers who want the IRS Independent Office of Appeals to review their case must wait an average of one year.
  10. Foreign Taxpayers: Americans living abroad face a number of hurdles in filing their taxes, such as barriers to electronic filing.

“While much work remains, the IRS is poised to deliver a better 2023 tax season for the nation – with more services for taxpayers, aided by much-needed new resources provided by the Tax Act. reduction in inflation,” the IRS told CBS MoneyWatch in an email.

Simplify the tax code?

One thing that Collins and anti-IRS lawmakers seem to agree on is that the country’s tax code is too complex. Its complexity is one of the reasons Rep. Carter argues that a flat-rate consumption tax would benefit Americans simply by shrinking the tax code. He also argues that a flat tax would “encourage growth and innovation”.

However, tax scholars have long pointed out that sales taxes eat away at the incomes of the poor and working class far more than the wealthy, because low-income households spend most of their wages on goods and services. The wealthy, on the other hand, spend a smaller share of their income, making it easier for them to save money in savings and investments.

There could be other hidden costs, according to the left-wing Institute on Taxation and Economic Policy. For example, the consumption tax would eliminate the tax credits that many Americans receive when they purchase health insurance through Affordable Care Act markets. They would also face a new 30% tax on their health insurance premiums, he noted.

Republicans “are preparing to vote on the so-called Fair Tax Act, which would eliminate federal income tax and force everyone to pay a flat 30% sales tax,” noted Frank Clemente, executive director of the tax advocacy group Americans for Tax. Equity, told CBS MoneyWatch.Thus, billionaires will pay the same share of taxes as working families.”

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