E-Filers Get Refunds in a Week, Taxpayer Advocate Says

But tax code is so complex, Erin M. Collins says she’d ‘scrap’ it and start over

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Despite challenges at the IRS, including resource shortages and a seemingly never-ending backlog of unprocessed returns, taxpayers filing electronically this year are getting their refunds within a week, an agency official says.

Key Takeaways

  • Despite resource shortages and other challenges at the IRS, electronically filed tax returns are being processed even faster than agency estimates, National Taxpayer Advocate Erin M. Collins said.
  • Taxpayers who file paper returns, which account for about 10% of the total, should expect delays of several months due to staffing shortages and outdated technology, Collins said.
  • While the IRS can and should make things easier for taxpayers dealing with a complex tax code—one she’d “scrap” and replace if she could—Collins doesn’t believe the agency should do your taxes for you.
  • Collins said the IRS deserves “huge kudos” for quickly implementing a system to manage child tax credit changes.

So far this tax season, 2021 tax returns that were e-filed have been processed even faster than the agency’s anticipated time frame of at least 21 days, according to Erin M. Collins, the National Taxpayer Advocate. The IRS said last week that the average refund as of April 8 was $3,175, up from $2,888 at this time last year. This year’s filing deadline for most taxpayers was April 18.

Unless the tax return includes an error, e-filed returns “are sailing right through the system,” Collins said. “If there's not a problem, we're seeing people getting their payments in less than a week.”

While about 90% of returns are being filed electronically, millions of taxpayers are still filing paper returns and likely won’t see refunds until September at the earliest, Collins said. That’s because previously filed paper returns will have to be processed first.

In a wide-ranging interview with The Balance, Collins addressed the agency’s challenges coping with outdated processes, an overly complex tax system, and shortages of funding and staff—and told why the IRS should stick to its traditional role as an administrator, not a preparer, of tax documents. A former tax managing director with accounting firm KPMG, Collins has led the Taxpayer Advocate Service since 2020. The independent organization within the IRS helps taxpayers deal with problems with the agency.

The IRS has experienced its fair share of problems, especially since the COVID-19 pandemic. Chief among them has been a backlog of about 24 million unprocessed paper returns, which Collins has previously described as the agency’s “kryptonite” (or Achilles’ heel).

So who still files paper tax returns? Some of the 10% may be people who are uncomfortable with computer technology or who don’t have access to tax professionals, but there are also businesses that have to file on paper because certain IRS forms require it, Collins explained.

The IRS is behind schedule on processing returns thanks partly to stay-at-home requirements during the pandemic and the agency’s resource shortages—its budget has decreased by more than 15% in “real terms” over the last decade, and its full-time staff of 79,000 is close to 1974 levels, IRS Commissioner Charles P. Rettig recently told lawmakers. It also didn’t help that the agency has had to implement a detailed child tax credit refund system and support other congressional pandemic mandates, including for stimulus payments and extended unemployment benefits.

'We're Not in the '50s Anymore'

The backlog of paper returns is mainly a technology problem, Collins said. Right now, all paper returns need to be entered manually into the IRS system, even though there are alternatives—like optical character recognition scanning, which uses a scanner to read the document—that have proven more accurate.

At least half the paper returns were initially created on commercial tax software, Collins said, only to be printed out and mailed to the IRS. She said the agency could use a barcode system to help import that data, as some states do now.

“I don’t care how you do it—get some sort of scanning technology in place for the next filing season,” she said.

A complicated revenue code also makes taxes hard for everyone, Collins said.

“If I could, I’d scrap the entire Internal Revenue code and start over.”

In few places is the code more complicated than with the earned income tax credit (EITC), which aims to help taxpayers with low to moderate incomes. The IRS says common errors made when filing for the EITC include claiming children who don’t qualify and more than one person claiming the same child. The EITC rules need to be updated to better reflect the dynamics of modern society, Collins said.

“As it is written, it's just too difficult. We're not in the ‘50s anymore,” she said. “We don't have your typical family structure, with Ward and June Cleaver, two kids. We have people who are not married, people who are married, people who are divorced. Children could be linked with a grandparent and a parent. Where we find ourselves as a society doesn't look the same as maybe it did 10 years ago. I think if the EITC could be simplified, it could still accomplish the goal that Congress is intending, but it could be implemented so much more easily. You could reduce all the errors and challenges and problems, possibly even reducing the improper payment rate.“

Should the IRS Do Your Taxes for You?

A complex tax system has been made more complicated by confusion over the agency’s Free File program, which aims to pair taxpayers with outside vendor-partners. Last month, the Federal Trade Commission issued a complaint against TurboTax maker Intuit, charging that many of the free products the company advertised weren’t available to millions of consumers.

Since the IRS already receives information directly from employers, some have suggested that the government could do the taxes for some filers by automatically submitting returns using taxpayer documents like W-2s and 1099s—an idea that’s been adopted by dozens of other countries.

Collins said that while the IRS could effectively put together tax forms for filers with simple tax returns, the big picture is so complicated she believes the agency should continue serving explicitly as an administrator of tax documents—not a preparer.

“I think it creates a problem that you’ve now turned the IRS into a return preparer, and put them in a position where they have to know information that's not in their database,” she said.

The primary drawback of the IRS preparing returns for taxpayers is that each individual is unique, with sometimes-changing circumstances such as child care and custody arrangements, deaths, divorce, outside income, and other things the IRS wouldn’t necessarily know unless reported by that individual, Collins said.

A Shortage of Resources

But that doesn’t mean the agency can’t do more to help, she added. For example, the IRS  might offer to populate your tax forms by providing taxpayers with the W-2s and 1099s that employers have already submitted to the agency.

“I think the IRS could do that extra step,” she said.

While some IRS challenges are the result of management priorities, others can only be fixed by additional government funding or congressional mandate, Collins said. One of the most critical problems facing the agency is a staffing shortage that currently amounts to at least 10,000 workers, she said. But a provision in the government’s fiscal 2022 spending bill that gives the agency direct hiring authority could help alleviate the cumbersome rules restricting some IRS recruitment, she added.

And, despite such challenges, Collins said the IRS deserves “huge kudos” for managing the hurried rollout of 2021’s advance child care tax credit.

“They just don't have enough resources to do all the things I'd like them to do,” she said. “But I don't think a lot of the things we're recommending the IRS disagrees with. It comes down to the priority of both staffing and funding.”

Have a question, comment, or story to share? You can reach Terry at tlane@thebalance.com.

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