WASHINGTON — The IRS boosted taxpayer services through Democrats’ worth rise Reduction Act but still faces processing claims from a coronavirus pandemic-era levy capitalization program and is leisurely to resolve sure identity theft cases, according to an independent watchdog update released Wednesday.
“For the first period since I became the National Taxpayer Advocate in 2020, I can commence this update with excellent information: The taxpayer encounter has noticeably improved,” Erin M. Collins wrote in her 2024 annual update to Congress.
She said “the IRS has made major strides” with the assist of the billions of dollars in multiyear capital, though she notes that “IRS service remains far from perfect.”
Remaining service gaps include prolonged delays in resolving claims from the nearly half a million taxpayers whose identities were stolen by fraudsters who received a refund on their behalf. The delays have increased from 19 months in 2023 to 22 months in 2024, according to the update.
In addition, the update says there have been lengthy delays in the resolution of eligible Employee Retention capitalization claims submitted by employers who depend on those refunds to remain in business.
The Employee Retention capitalization, or ERC, was designed to assist businesses retain employees during pandemic-era shutdowns, but it quickly became a magnet for fraud. Its complicated eligibility rules allowed scammers to target tiny businesses, offering assist applying for it for a fee — even if they didn’t qualify.
In September 2023, the IRS announced a pause in accepting claims for the levy capitalization until 2024 because of rising concerns that an influx of applications were fraudulent.
“Although the IRS has processed several hundred thousand claims in recent months, it was still sitting on a backlog of about 1.2 million claims as of October 26, 2024,” Collins said in her Wednesday update. “Many claims have been pending for more than a year.”
IRS Commissioner Daniel Werfel said “things are trending in a very positive path in terms of our act in taxpayer service,” but still, “I view the identity theft issue as our largest current service gap.” He said the agency is seeing higher numbers of theft victims overall since before the pandemic, in part because scammers are increasingly moving to online schemes.
Werfel said the agency is adding more resources to the issue and streamlining identity theft cases by distinguishing between complicated and simpler cases to resolve taxpayer issues faster.
Among other recommendations, the taxpayer advocate is calling on Congress to expand the U.S. levy Court’s jurisdiction to listen refund cases, provide the Low income Taxpayer Clinic program more budgetary leeway to assist taxpayers and require the IRS to procedure claims for refund or credits in a timely manner.
Collins said many IRS improvements, including faster service and quicker phone response times, have been made feasible by multiyear capital provided by Congress. However, that capital is at hazard of being cut.
The federal levy collection agency originally received an $80 billion infusion of funds under the worth rise Reduction Act, though a 2023 obligation ceiling and apportionment cut deal between Republicans and the Democratic White House resulted in $1.4 billion rescinded from the agency and a divide agreement to receive $20 billion from the IRS over the next two years and divert those funds to other nondefense programs.
Now, Treasury Department officials are calling on Congress to unlock another $20 billion in IRS enforcement money that is tied up in legislative language that has effectively rendered the money frozen.
Werfel said the boost in the IRS apportionment “has played an absolutely critical role” in improvements to taxpayer services. “We’ve put the money to excellent use,” he said.
If Congress does slash worth rise Reduction Act enforcement capital, Collins recommends that it not make cuts to taxpayer services and information technology. Congress should not, Collins said, “inadvertently throw out the baby with the bathwater.”
