IRS budget boosted as agency struggles against tax return backlog

The IRS budget for 2022 is set to receive a 6 percent increase from the previous year in the $1.5 trillion omnibus spending package, as the tax agency faces a pandemic-induced backlog of unprocessed tax returns and a staffing shortfall.

One of the largest segments of the increase will go to services for taxpayers, which received $225 million, a 9 percent annual jump that will help tackle processing delays and unanswered phone calls that have affected tens of millions of Americans.

“Last year was the most challenging year taxpayers and tax professionals have ever experienced,” National Taxpayer Advocate Erin Collins testified last month to Congress, adding that many of the delays experienced by taxpayers “have been substantial and ongoing.”

Another significant budget boost is a 20 percent increase for upgrading the IRS’s various business systems, which Collins has said are incompatible and “need to get out of the age of the dinosaur,” and a 4 percent increase for enforcement capabilities.

IRS criminal investigators would receive $21 million for new technology in the spending package, a 40 percent increase from the previous year.

Senate Finance Committee Chair Ron Wyden (D-Ore.) had been advocating for more investigative funding for the IRS in the wake of the Russian military invasion of Ukraine, saying the division has been starved of resources.

The Department of Justice said the criminal investigations division would be a part of its KleptoCapture task force designated to enforce sanctions, export restrictions and economic countermeasures on Russia.

“This unit plays a critical role in going after illicit Russian assets, and Congress needs to give these experts the resources they need for these highly complex investigations,” Wyden wrote in a March 1 press release.

The IRS’s expanded budget will also likely pay for around 10,000 new IRS jobs, announced earlier this month by the National Treasury Employees Union. The entry-level positions will be in submission processing and accounts, “presumably to help address concerns that the agency’s hiring process is difficult and slow,” National Treasury Employees Union head Tony Reardon said in a statement.

“It is clear that understaffing in these areas contributes to the backlog in processing of tax returns,” he added.

The $12.6 billion allotted to the IRS in the omnibus bill is 7 percent shy of the $13.6 billion the House had initially asked for. 

“The pandemic forced the IRS to temporarily shut down its processing facilities for the health and safety of employees,” taxpayer advocate Collins testified to the Senate Finance Committee in February. “That, in turn, caused the IRS to fall behind on its inventories, and it is still struggling to catch up.”