Updates on 2023 Tax Filing Season
National Taxpayer Advocate Erin M. Collins released her statutorily mandated midyear report to Congress. The report analyzes the IRS’s effectiveness in processing original returns, amended returns, taxpayer correspondence and answering taxpayer telephone calls.
Reflecting on the challenges taxpayers experienced in recent filing seasons due to the COVID-19 pandemic, she said, “The taxpayer experience vastly improved during the 2023 filing season. The IRS caught up in processing paper-filed original Forms 1040 and various business returns; refunds were generally issued quickly; and taxpayers calling the IRS were much more likely to get through – and with substantially shorter wait times.”
Despite these improvements, the report says the IRS is still behind in processing amended tax returns and taxpayer correspondence. Typically, employees in the IRS’s Accounts Management function perform two roles – they answer telephone calls, and they process taxpayer correspondence, amended returns and other cases. The report says the IRS was much more effective in answering taxpayer calls this year, “but [that] could only be accomplished by prioritizing the phones over other IRS operations, and it resulted in greater delays in the processing of paper correspondence.”
Processing of original tax returns. The IRS reduced its backlog of unprocessed paper-filed original tax returns from 13.3 million at the end of the 2022 filing season to 2.6 million at the end of the 2023 filing season. That represents a reduction of 80% and marks a return to pre-pandemic levels. As of June 3, however, the inventory of unprocessed paper-filed original returns had grown to 4.1 million, consisting of about half individual returns and half business returns.
Processing of amended tax returns. In contrast to the 80% reduction in the backlog of paper-filed original tax returns, inventory of amended returns was 3.6 million in April 2022 and 3.4 million in April 2023, a reduction of only six percent between the two periods.
For individual amended returns (Forms 1040-X), the IRS’s processing time was about seven months as of the end of the 2023 filing season. On the business side, a large portion of the delay in processing amended returns is attributable to Employee Retention Credit (ERC) claims. The ERC is a refundable tax credit that Congress authorized to encourage employers to retain employees during the COVID‑19 pandemic. Employers may receive up to $26,000 per employee if they meet certain conditions. Many ERC claims are legitimate, but the IRS has also received a large number of fraudulent claims and has placed promoter claims involving the ERC on its “Dirty Dozen” list of tax scams.
In summary, the full report states that during Filing Season 2023, the IRS improved its processing of original returns and performance on its Accounts Management phone lines compared to recent years. But this improvement came with expected costs, e.g., creating a new paper backlog in amended returns and taxpayer correspondence. In addition, to answering calls, the employees process responses to IRS notices and many types of taxpayer requests such as applications for Employer Identification Numbers, a high percentage of Identity Theft Victim Assistance cases, and the tax return preparer applications. For victims of identity theft, the delays have been particularly long and frustrating. The average cycle for ID Theft Victim Assistance cases closed in April 2023 was 436 days.