IRS and Covid-19 Update

The onset of the COVID-19 pandemic in early 2020 saw an influx of major changes across personal and professional landscapes—including Internal Revenue Service operations and enforcement. The IRS scaled back a number of its operations to offer taxpayers what relief it could as it navigated the uncertainty of the early days of the pandemic. Now, as the IRS attempts to resume its activities, it faces challenges with a massive backlog of returns and correspondence and issues with limited funding.

IRS enforcement was temporarily shut down between March and July 2020 as the agency transitioned to a fully virtual work environment. Simultaneously, it announced the “People First Initiative,” a program aimed at offering relief to struggling taxpayers. The initiative modified several key IRS activities: new audits were delayed, liens and levies were suspended, private collection actions were delayed, installment agreements were restructured and/or suspended, and offers in compromise negotiations were extended and/or suspended. As the pandemic progressed, the People First Initiative was gradually modified to reflect contemporary needs—the program is still in action today, although on a smaller scale. The IRS also distributed Economic Impact Payments three separate times over the past two years, totaling over $830 billion in payments to taxpayers, not including individual tax refunds.

As of March 2022, the IRS is making aggressive moves to bring enforcement actions back up to speed and to deal with its unprecedented backlog of unprocessed inventory items. However, it faces challenges due to the stagnant size of its workforce and chronic budget cuts.

The IRS workforce has not grown in size since the 1970s, despite significant increases in the American population and the difficulty of handling this growth. To combat this, the IRS has announced that it is implementing hiring initiatives to bring on 10,000 new employees by next year. It is also making internal changes to employee structure, moving hundreds of employees to teams dedicated singularly to processing returns and correspondence, as well as offering more employees overtime pay to work night shifts.

Ensuring growth in the IRS workforce numbers is key for the agency to handle its backlog. Typically, the IRS has less than one million items to process during a filing season; this year, it had 15 times as many pieces of inventory to go through. The IRS has announced its commitment to reaching normal inventory levels by next year. To achieve this goal, the agency has dramatically increased outreach to, and communication with, taxpayers in an effort to ensure that they file their returns as accurately as possible. This will save potentially millions of returns from having to go through manual return processing to correct small errors. The IRS is also developing and implementing automation technology to correct faulty returns and offer assistance to taxpayers reaching out with questions or concerns.

Perhaps the greatest challenge facing the IRS in accomplishing its goal is the series of budget cuts it has faced over the past decade. The pandemic and its accompanying challenges placed an even greater strain on the agency’s already thin financial structure, resulting in the overwhelming backlog the IRS is now attempting to face. The agency is finally set to receive a dramatic increase in funding this current year, particularly for taxpayer services and upgrading its business systems. This budget increase will also facilitate the agency’s planned workforce expansion. With these measures in place, the IRS is set to take the brutal filing season it needs to conquer before its enforcement activities can fully return to normal.