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The IRS doesn’t have what they need to serve Americans well—Congress can help

Natasha Sarin, Counselor for Tax Policy and Implementation

Today is “Tax Day,” the annual filing deadline and an important day for the IRS and American taxpayers. Over the last several months, the IRS received over 130 million returns from individuals and businesses across the country. It has collected more than 95 percent of the revenue that will fund the American government for the next year and has already disbursed more than $220 billion in refunds and credits to the American people–and with tens of millions of Americans getting tax relief as a result of the American Rescue Plan.1

Today’s deadline is an inflection point in what has been the agency’s most challenging filing season in recent history. This is the byproduct of chronic underfunding that has starved the IRS of the tools it needs to serve the American people, coupled with a historic pandemic that introduced new responsibilities alongside mammoth challenges.

That is why the Biden Administration has at every turn worked with Congress to try to provide the IRS the stable, long-term funding that it desperately needs. And, Congress is right now considering this pivotal investment as part of legislation that would reduce costs for families and the deficit. But, to date, this need remains unmet.

As a result, the IRS began this tax season with tens of millions of returns unprocessed from last year. This is, in part, because the IRS’s technology is antiquated—in significant ways, the IRS is still a paper- based agency, with a heavy reliance on manual processing. As one example, IRS employees open paper returns by hand.

The IRS has a plan in place to get through its backlog of unprocessed returns this year. But so long as funding remains insufficient, the system will be at risk of these kinds of failures and Americans won’t have the kind of service they deserve.

Throughout the pandemic, IRS employees have been on the frontlines, literally putting their lives at risk to keep our tax system functioning. And they’ve done so while massively understaffed: the agency’s budget is so depleted that the workforce is at 1970s levels, 20 percent of employees are eligible to retire, and hiring new workers is a months-long process where uncertain funding means that the agency must assume risk to build its workforce, as vital funding to support them in the years ahead is far from guaranteed.

The IRS knew walking into this filing season that it did not have the workforce or technology in place to serve the American people the way they deserve—to pick up the phones when taxpayers call, to help them access all the credits and benefits to which they are entitled, and to ensure that each and every taxpayer receives their refund quickly. Certainly, they’ve done Herculean work, issuing 90% of the refunds to individual electronic filers in under three weeks, sending $1.5 trillion in support to American households over the last two years—including three rounds of stimulus checks—and, for the first time in history, advancing the child tax credit to lift millions of children out of poverty. And yet, they could have done far more with the appropriate tools in place.

A look across countries illustrates what an adequately funded tax administrator can deliver to the American people. Consider tax filing simplification, a longstanding (unfunded) priority of the IRS. In many developed countries, tax filing is simple and costless: estimates suggest that it takes the average Estonian just five minutes to file a return, and in Sweden some taxpayers file by simply replying “yes” to a text message.2 Or taxpayer service, a concern at the crux of the IRS’s mission. When COVID complicated filing, Norway and Singapore expended significant resources to expand chat and video channels and extend call center operating hours to make the agency more accessible during the filing season. Or, perhaps, modern technology: the OECD reports that 75 percent of tax administrators around the world use machine learning and artificial intelligence to reduce the need for human intervention in the filing process.3 Meanwhile, at the IRS, campus employees have a high order need for red pens so that clerks can circle line items on paper returns to transcribe by hand.

Ours is a tax system that takes the average American 13 hours to file.4 It is a tax system with a gap between what is owed and what is collected that is estimated to be $600 billion annually—roughly three percent of GDP on an annualized basis, with more than 30 percent of these unpaid obligations accruing to the wealthiest one percent.5 It is a tax system where ripped paper returns are literally pieced together with scotch tape.

The prescription for the agency going forward is clear: the IRS needs stable, long-term funding. $80 billion over the course of the next decade will finally give the IRS the capacity to modernize and invest in a 21st century workforce. The result will be a much smoother experience for the American taxpayer, where filing is easier, and processing is automated. It will be a fairer and more equitable tax system, with the agency able to collect from top-earning evaders who currently skirt their responsibilities. And it will mean an IRS that is able to serve the American people the way that it wants to, and the way that they deserve. These changes will not happen overnight, but meaningful progress can be made swiftly—well in time for next Tax Day, and certainly those beyond.


1 IRS. Filing Season Statistics for Week Ending April 1, 2022 | Internal Revenue Service. 8 Apr. 2022, https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-april-1-2022.
2 Thompson, Derek. “The 10-Second Tax Return.” The Atlantic, Mar. 2016, https://www.theatlantic.com/business/archive/2016/03/the-10-second-tax-return/475899/.
3 OECD. Tax Administration 2021: Comparative Information on OECD and Other Advanced and Emerging Economies. OECD Publishing, 2021.
4 IRS TY 2021. 1040 (and 1040-SR) Instructions. Department of the Treasury, Internal Revenue Service, 21 Dec. 2021, https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.
5 Sarin, Natasha. “The Case for a Robust Attack on the Tax Gap.” U.S. Department of the Treasury, 7 Sept. 2021, https://home.treasury.gov/news/featured-stories/the-case-for-a-robust-attack-on-the-tax-gap.