IRS still has a sizable backlog of returns despite improvements, taxpayer advocate says

LAS VEGAS — After a difficult three years for taxpayers, the IRS has made significant improvements. But there's still work to do, according to National Taxpayer Advocate Erin Collins.

"This filing season has probably been as close to normal as possible," she said, speaking at the American Institute of Certified Public Accountants' annual conference, held June 3-6 in Las Vegas.

However, despite customer service boosts, the agency is still working through a sizable backlog — including amended returns, filings in suspense and other correspondence, she said.

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Collins heads the Taxpayer Advocate Service, an independent organization within the IRS that provides one-on-one guidance and works for systemic changes. The national taxpayer advocate leads about 80 nationwide offices for struggling filers, consults within the IRS, reports annually to Congress on the agency's biggest problems and presents legislative proposals.

Collins said the IRS is currently juggling 3.7 million amended returns, 6.8 million "in suspense" with missing information and 5.3 million pieces of correspondence. "Those are pretty big numbers that the IRS is still dealing with," she said.

This season, the agency has prioritized phone service and answered more than 85% of calls from key phone lines in less than five minutes.

"But it did come at a cost," Collins said, because phone assistors process paper returns during downtime from answering calls. "The problem is, we are now back to a backlog of paper correspondence and amended returns, similar to where we were a year ago," she said.

Collins also expressed concerns about the agency's plans for new programs amid the current backlog.

In May, the IRS announced testing for a free online direct filing system, with a pilot program launching for some taxpayers during the 2024 filing season.

Nearly three-quarters of taxpayers expressed interest in a free IRS-provided filing system, according to a 2022 survey cited in the agency's feasibility report.

Collins said that while she believes the IRS has the technical capability to implement direct filing, she worries about the timing. "IRS still is not out of the hole that they have dug," she told CNBC.

"We cannot go into the next filing season with another backlog," she said. "We need to eliminate that word from the IRS' vocabulary."

"No more backlogs," she added.

Collins also pointed to state tax challenges, especially for more than 40 states that rely on federal returns for residents' state filings. If you decouple those returns, it could cause issues for state tax administration, she said.