Dive Brief:

• While the Internal Revenue Service reduced its backlog of unprocessed original paper returns by 80% to 2.6 million by the end of the 2023 filing season, it made less progress when it came to its amended return inventory, which it only cut back by 6% in April to 3.4 million compared to the year-earlier month, according to the National Taxpayer Advocate’s mid-year report to Congress released this week.

• “On the business side, a large portion of the delay in processing amended returns is attributable to Employee Retention Credit (ERC) claims,” the report states, adding that employers can receive up to $26,000 per worker 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.” 

• The ERC is a legitimate refundable tax credit aimed at encouraging employers to keep workers on the payroll during the COVID-19 pandemic but the IRS has been on the lookout for false claims and in March warned tax filers to guard against third parties who promote what it called ERC schemes.

Dive Insight:

The ERC finding was tucked in a broader report that suggests the outlook is improving when it comes to the speed of service that CFOs and tax preparers can expect from the IRS. 

“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. Overall, the difference between the 2022 filing season and the 2023 filing season was like night and day,” National Taxpayer Advocate Erin M. Collins wrote in the report.  

But the findings were still mixed. For example, substantial improvement was seen in the reduction in the backlog of unprocessed paper tax returns at the end of this year’s filing season which brings the IRS back to pre-pandemic levels, the report states. At the same time, the filings keep coming and the report noted that since that time through June 3 the inventory level of the paper returns — half of which were comprised of business returns — jumped by about 58% to 4.1 million.  

The report comes as the IRS has drawn some political heat for its plans to channel more than half of an $80 billion, 10-year budget boost toward enforcement, aiming particularly at reducing tax evasion by large companies, partnerships and wealthy individuals, CFO Dive previously reported. 

Republican lawmakers have criticized the expansion in IRS funding, claiming enforcement will mostly target middle-class taxpayers. The IRS has defended the funding increase, saying a recent lack of investment has led to low levels of service, paper-based processes and antiquated technology.

The NTA oversees the Office of the Taxpayer Advocate in the IRS.