IRS’s Struggles With Backlogs Draw Scrutiny From Lawmakers, Taxpayers

“A lot of folks in my district need the IRS to function so they can actually survive,” said Rep. Jimmy Gomez (D., Calif.) “It’s really still difficult to navigate.”

Erin Collins, the national taxpayer advocate, told lawmakers that the IRS has been struggling to hire workers and catch up with delayed work. The agency, she said, needs to do more than the temporary staff reshuffling it announced last week and should consider hiring outside vendors to perform basic clerical tasks.

“We need to put the processing backlog behind us,” said Ms. Collins, who runs an independent taxpayer-service operation inside the IRS. “We need to get the IRS out of the hole it currently finds itself in.”

The IRS got behind during the pandemic, due to office closures and new tax-code provisions that made the agency responsible for stimulus payments, child tax credit payments and a special break for employers who retained workers.

For many people who filed electronically and whose tax returns matched the information the IRS already had, refunds moved quickly and will again this year. But anything requiring human involvement—paper correspondence or mismatched information—causes extensive delays.

“There appears to be no end in sight,” said Rep. Jackie Walorski (R., Ind.), who said her office hears daily from struggling constituents stuck in an infuriating process.

John Estes Jr., a retired railroad executive in Hood River, Ore., said he filed his 2020 tax return almost 11 months ago and is waiting for a refund that could be about $84,000 or $98,000. Mr. Estes said he had forgotten to include an estimated-tax payment on his original return and that there may have been confusion about how some withholding was reported.

But he said that shouldn’t cause months of delays, prompt letters from multiple IRS offices and leave him unable to get a clear answer about the status of the problem.

“It seems to me this is a couple-minute conversation with somebody to straighten this out,” he said. “I don’t have any hope that anything’s going to happen any time soon.”

The IRS says it is playing catch-up from tax year 2020, even as the new tax-filing season starts and 2021 returns arrive.

As of Feb. 2, the IRS had 1.5 million employer tax returns it hadn’t processed. As of Dec. 31, it had 6 million unprocessed individual income returns, plus another 2.3 million amended returns as of Jan. 8.

Bryan Starnes, chief financial officer of ALG Senior, which manages about 150 assisted-living centers in the Southeast, is waiting for $37 million from the employee retention tax credit. That delay, he said, forced him to re-budget 12 times and suspend capital improvements to buildings.

“It has been the most maddening thing I have ever encountered,” said Mr. Starnes, who assigned 20 members of his team to call the IRS at 7 a.m. Tuesday for status updates and makes regular mailroom visits to look for IRS envelopes with checks. “We’re managing a lot of real estate, a lot of human lives. And our everyday question is: Did any money come in the mail today?”

At Tuesday’s hearing led by Rep. Bill Pascrell (D., N.J.), Ms. Collins said paper returns have been taking up to 10 months to process, with the IRS using manual entry to get those returns into electronic records. She described seeing piles of tax returns during a recent visit to an IRS facility in Kansas City.

“Paper remains at the heart of the agency’s challenges,” she said.

Last week, the IRS began temporarily reassigning about 1,200 workers to handle taxpayer correspondence, as the agency’s processes can lead to long back-and-forth exchanges as taxpayers respond to notices and submit additional required documents.

“This is an all-hands-on-deck situation to help people as quickly as possible and reduce the stress on employees who have been and continue to face unprecedented levels of inventory to be worked,” IRS Commissioner Charles Rettig wrote to employees.

Mr. Rettig said last month that the agency has struggled to hire new workers, trying to find 5,000 people but only getting 179 over the prior few months.

Tax preparers have pressed for further actions, including relaxed penalties and halts to some automated tax-compliance efforts.

Tony Reardon, president of the National Treasury Employees Union, which represents IRS workers, said the agency needs more funding.

“To state the obvious,” he said, “this large-scale reassignment of employees is a temporary fix at best.”

Rep. Tom Rice (R., S.C.) said the IRS has up to $1 billion in funds it hasn’t spent yet, and contended that long-term budget increases won’t help taxpayers in the short run.

“Money is not always the problem,” he said. “If it is, the agency certainly has a whole pile of it sitting around.”

Write to Richard Rubin at [email protected]