IRS, stuck in backlog of tax returns, drops plan to close Austin processing plant

Nearly 90% of filers submit their tax returns online, a number the agency is trying to increase to improve efficiency and accuracy. But that still leaves tens of millions of paper returns for the IRS to process in centers like Austin, and the agency has fallen far behind. It has a backlog of 24 million tax returns, with some refunds stuck for 10 months or more.

The consequences for some have been devastating: millions of taxpayers rely on IRS reimbursements for basic living expenses; 8 in 10 received refunds in 2021, according to IRS data. Delays in disbursing this money can have a lasting impact on cash-strapped households or taxpayers who build their repayments into their financial plans.

Critics of the IRS’ plans to close the Austin facility by 2024 — including the agency’s inspector general, the National Taxpayer Advocate Service and congressional Democrats — have warned that the slowdown in operations of the agency could create significant financial hardship for millions of families.

It could also have slowed down the two remaining processing centers in Utah and Missouri, the company warned. The agency already closed another facility in Fresno in September.

“To ensure there is sufficient capacity to better serve taxpayers nationwide, the IRS now believes it has three [submission processing] sites is the best approach. As a result, the IRS decided to reverse Austin’s consolidation when it completed its annual review in January 2022,” the agency wrote in a memo to Congress, obtained by The Washington Post. “While the decision to keep Austin open is based solely on the results of the revalidation analysis, it also aligns with feedback received during a recent audit conducted by the Treasury Inspector General Tax Authority as well as concerns expressed by the Office of Taxpayers’ Advocates and the National Union of Treasury Employees.

Tax processing centers are massive buildings where officials open mail, manually enter taxpayer data on handwritten returns, handle correspondence, and handle the most essential steps. But the staff and resources for these facilities have dwindled over time with the IRS budget.

The agency’s annual funding from Congress has fallen 20% adjusted for inflation since 2010, according to the Congressional Budget Office, and it has lost more than 22% of its staff. Nearly 17,000 of its 78,000 employees are eligible for retirement and it expects 5,590 of them to retire in 2022.

IRS hiring hasn’t kept pace with separations in years, experts say, and agency workers are often poached by the private sector to help clients navigate the country’s Byzantine tax code. IRS downsizing plus outdated equipment – ​​old mail scanners cost the agency $56 million in 2021 because the agency couldn’t tell if the envelopes it received contained checks – contributed to the accumulation of arrears.

“We commend the IRS for finally recognizing that these Austin employees are critical to the agency’s ability to extract from the backlog of returns and correspondence, and that there is still a need for the IRS to retains that ability,” the National Union of Treasury Employees said. Chairman Tony Reardon said in a statement. “This decision, although later than we would have liked, allows Austin employees to stop worrying that their jobs are about to disappear, and instead focus on achieving a season of success. Successful filing, the third of the pandemic.”

The IRS’ two “worst problems” heading into the 2022 tax season were its delays in processing returns and issuing refunds, and its lagging recruiting, hiring and training, according to National Taxpayer Advocate Erin M. Collins.

Earlier Thursday, congressional Democrats wrote to IRS Administrator Charles P. Rettig asking him to reverse the Austin shutdown. Ten senators and 15 House members have urged Rettig to at least delay closing the center until the tax collector can resolve his backlog and hiring issues.

“While we understand that these consolidation efforts are being driven by the trend of declining paper returns and a savings of $94 million, we believe these efforts no longer make sense – particularly given the ‘significant paper backlog and hiring challenges that have plagued the IRS for the past two filing seasons,’ the lawmakers wrote.

The inspector general went further in a report released earlier in February, calling the projected savings “relatively insignificant” compared to the IRS’ $12 billion budget and “the additional burden that will be imposed on taxpayers in due to ongoing and new backlogs that will result from shifting returns processing.

Closing the Austin facility, according to the inspector general, would have seriously hampered the IRS’ ability to manage its paper and resulted in a significant downsizing of the agency’s workforce.

When the Fresno Tax Processing Center closed, the agency lost 1,445 employees. At the Austin plant, the inspector general reported, the IRS had already lost hundreds of employees in key positions because the agency delayed finalizing its plans. The workers left to take other jobs.

“Keeping our IRS center going means more tax returns will be processed in a timely manner with remittances and faster child tax credit payments,” said Rep. Lloyd Doggett (D-Tex.), whose the district includes most of Austin, in a statement. “Austin workers gain job security while the agency gains the ability to recruit more Central Texas talent. I am pleased that our application was approved to meet both the growing needs for taxpayer service and the need for job security for workers in Austin.

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