In May 2022, the IRS released its annual Data Book, a compendium of statistics from the agency offering a snapshot of its functions and activities during the most recently completed fiscal year (October 1, 2020 through September 30, 2021). The Data Book focused on several key areas:
- The IRS’s continued response to the COVID-19 pandemic;
- Returns filed, taxes collected and refunds issued;
- Service to taxpayers;
- Compliance presence;
- Collection activities; and
- IRS budget and workforce.
As a result of 2020 and 2021 tax legislation, the IRS was tasked with issuing more than 476 million economic impact (aka stimulus) payments over three rounds, representing more than $814.4 billion put into the hands of taxpayers, with third-round payments beginning the day after being signed into law. Further, over the second half of 2021, more than 27 million families received more than $93 billion in advance child tax credit payments.
The IRS also assisted businesses in recovering from the pandemic through the employee retention credit, sick and family leave credit and COBRA premium assistance credit. The IRS notes that over 1 million employers claimed these credits during the 2021 fiscal year, totaling $69.3 billion―though curiously, the Data Book does not address the number of returns with these credits that have been processed. In practice, we have seen businesses continuing to experience delays in processing of these claims.
The Data Book also highlights recent efforts to serve taxpayers with new online tools and webpages. In particular, two pages garnered over 600 million visits in 2021: the coronavirus/get-my-payment webpage and the associated “Get My Payment” self-serve tool.
Largely as a result of the economic impact payments issued in 2021, refunds issued were up from $736 billion in 2020 to $1.138 trillion in 2021 (an increase of approximately 55 percent). However, gross collections were also up, from $3.493 trillion to $4.112 trillion (18 percent), resulting in an increase in net collections from $2.757 trillion to $2.974 trillion (8 percent).
The biggest gains in net collections came from business income taxes ($162 billion, an increase of almost 80 percent) and individual, trust and estate income taxes, where net increases went up about $90 billion, an increase of 7 percent.
By the number of returns filed, there were dramatic and significant swings in 2021. For example, the IRS’s recent enforcement actions on international taxpayers may have caused the increase in filing of certain international and nonresident forms in 2021, such as 1040-NR, 1040-PR and 1040-SS, which increased 64.6 percent in 2021. In a more morbid reflection of recent events, the number of estate tax returns increased by 89.5 percent in 2021. Gift tax returns also increased 78.4 percent in 2021, as taxpayers increasingly enacted wealth planning strategies ahead of potential tax increases.
Service to Taxpayers
Though 75 percent of taxpayers surveyed were either “very” or “somewhat” satisfied in their personal interactions with the IRS, this is down 3 percent from the prior year and perhaps represents a unusual sample of taxpayers who are actually able to get a hold of a live employee. In 2021, the percentage of callers who were able to receive live assistance from the IRS decreased from 51.2 percent to 21.3 percent, and average hold times increased from 18.3 minutes to 22.8 minutes. This mirrors our own experiences as of late, where many IRS phone lines often do not even give you the option to wait, and just terminate the call automatically.
While the IRS highlights the nearly 2 billion visits to IRS.gov and 632.4 million inquiries on “Where’s My Refund,” these statistics are likely due to taxpayers’ desperation to find assistance anywhere, rather than just an overwhelming preference for online help.
Overall, new compliance activity at the IRS decreased in 2021. For tax year 2019, less than 0.17 percent of all returns were audited, down from 0.20 percent for tax year 2018. Though high-income individuals and businesses remain a disproportionate focus of examiners, for these categories too, audit rates have decreased for the most recent tax year from 5.3 percent to 2.0 percent for individuals with total positive income of $10 million or more, and from 36.8 percent to 23.9 percent for C corporations with balance sheet assets of $20 billion or more. However, more recently, IRS audit efforts on the wealthy have increased, as the audit rate for individuals with total income over $10 million has increased from 2.0 percent on September 31, 2021, to 8.7 percent as of May 1, 2022.
IRS collection activity in 2021, while increased from 2020, was still lower than in 2019. In 2021, the IRS increased their collections on unpaid balances due with tax returns and assessed more in additional taxes for late-filed returns, though both figures remained substantially below fiscal year 2019, the last full year prior to the pandemic:
Total civil penalties assessed followed a similar trend, with $37.3 billion being assessed in 2021, up from $31.4 billion in 2020, but down from $40.5 billion in 2019.
IRS expenditures increased from $12.3 billion in 2020 to $13.7 billion in 2021, an increase of 11 percent, with taxpayer services and operations support seeing most of these increases as the IRS strives to modernize and improve taxpayer experiences. In 2021, the IRS increased their collection efficiency, with a cost of $0.33 to collect $100 in tax, down from $0.35 in 2020.
Staffing also increased in 2021, with 78,661 full-time equivalent positions, as compared to 75,773 in 2020 and 73,554 in 2019.
For the IRS and society at large, 2021 marked the beginning of a return to normalcy after 2020 operations were heavily impacted by the pandemic. While we would expect IRS operations to continue to recover in 2022, early results have not been promising. Anecdotally, telephone contact with the IRS seems even worse this year, and many returns, payments and letters remain unprocessed and unaddressed. As President Joe Biden continues to push for an increase in the IRS budget, perhaps more funding will arrive in the coming months. When it comes to the whims of Congress, one can only wait and see.