Fast Facts

The IRS faced numerous challenges during the 2020 filing season due to the COVID-19 pandemic. For example, it closed all processing facilities for several weeks for health and safety reasons. This, in turn, led to millions of pieces of unopened mail—including paper tax returns.

We reviewed IRS's efforts to process tax returns, serve taxpayers, and prepare for the 2021 filing season. We made 7 recommendations, including that IRS:

revise its estimates for addressing its 2020 backlog of work

identify alternate work assignments for staff on paid leave due to the pandemic

identify, assess, and address risks to the 2021 filing season

A stack of opened mail.

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Highlights

What GAO Found

The 2020 filing season occurred during the global COVID-19 pandemic, introducing challenges that the Internal Revenue Service (IRS) had to respond to quickly to fulfill its mission-essential functions. IRS took steps to protect the integrity of its operations, help ensure the health and safety of its employees, and provide relief to taxpayers. For example, IRS closed all its processing and service facilities for several weeks before re-opening with health and safety measures and extended the filing season deadline to July 15, 2020.

IRS's 2020 processing of e-filed returns was generally on par with prior years. However, IRS's overall 2020 performance was significantly impacted by its reliance on manual processes such as for paper returns, and its limited ability to process returns remotely while processing centers were closed. As a result, as of December 2020, IRS had a significant backlog of unprocessed returns and taxpayer correspondence. Additionally, costs increased including interest on delayed refunds which exceeded $3 billion in fiscal year 2020. IRS has not revised its estimates for addressing all of the backlog due to operational uncertainties created by the pandemic. Doing so would help IRS determine how best to address the backlog and perform 2021 filing season activities.

Refund Interest Paid to Taxpayers, Fiscal Years 2019 and 2020

Refund Interest Paid to Taxpayers, Fiscal Years 2019 and 2020

GAO also found that about 23 percent of business tax returns were filed on paper even though an e-file option is available. IRS has not comprehensively identified barriers to business-related e-filing nor taken specific actions to increase e-filing. Doing so would help reduce the volume of costly paper-based work and improve services to business filers. Further, during the filing season, IRS transitioned nearly two-thirds of its phone customer service staff to telework, but was unable to do so for returns processing staff because most of its paper-based work is not set up to be performed remotely. As of late October 2020, about one-third of these staff remained on paid leave. Identifying and implementing alternative work assignments for staff that remain on paid leave would better support IRS operations and reduce costs.

IRS has not fully identified and assessed all risks to the 2021 filing season—including those exacerbated by the COVID-19 pandemic—consistent with enterprise risk management practices. IRS identified some risks in October 2020 after GAO raised concerns, but did not fully address all essential elements of enterprise risk management, such as identifying options for risk response. Doing so would better position IRS to respond to risks during the 2021 filing season. In early 2021, after receiving a draft of this report, IRS provided additional information on its risk management efforts. GAO will review this information to determine if these efforts are sufficient to address its recommendation.

Why GAO Did This Study

During the annual tax filing season, generally from January to mid-April, IRS processes more than 150 million individual and business tax returns and provides telephone, correspondence, online, and in-person services to tens of millions of taxpayers. Due to the COVID-19 pandemic and to provide relief to taxpayers, IRS extended the 2020 filing and payment deadline by 3 months to July 15, 2020.

GAO was asked to review IRS's performance during the 2020 filing season. This report (1) describes the changes IRS made to operations and services for the 2020 filing season due to the COVID-19 pandemic; (2) assesses IRS's performance on providing customer service and processing individual and business income tax returns during the 2020 filing season and compare to prior filing seasons, where appropriate; and (3) evaluates IRS's plans to prepare for the 2021 filing season.

GAO analyzed IRS documents, filing season performance data, and employee timecard data; assessed IRS's plans for the 2021 filing season; and interviewed cognizant officials.

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Recommendations

GAO is making seven recommendations, including that IRS revise estimates for addressing its backlog; identify and address barriers to e-filing for business taxpayers; identify and consider implementing alternative work assignments for returns processing staff on paid leave; and identify and assess risks to the 2021 filing season. IRS agreed with four recommendations and disagreed with three. GAO believes that the recommendations remain warranted.

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service
Priority Rec.
This is a priority recommendation.
The Commissioner of Internal Revenue should revise IRS's estimates for resolving its backlog of work from the 2020 filing season. (Recommendation 1)
Open
IRS disagreed with this recommendation. In February 2021, IRS said it continues to monitor and assess the 2020 filing season carryover paper inventory daily, and that it adjusts processing priorities based on constantly changing variables that affect the paper inventory backlog, such as social distancing requirements and shutdowns in functional areas due to reported positive COVID-19 tests. We agree that monitoring inventory levels is a useful management tool. However, the backlog of work includes more than paper inventory, such as millions of e-filed returns suspended for errors or potential identify theft. IRS addressed its unopened mail backlog in mid-December 2020, and is now in a position to better estimate the effort required to resolve the backlog of unprocessed returns, returns held for review due to errors or suspected identity theft, and taxpayer correspondence. Doing so would help IRS identify potential resource needs, including staffing, and provide taxpayers and stakeholders, including Congress, critical information about when IRS expects to process taxpayers' 2020 returns and deliver long overdue refunds.
Internal Revenue Service The Commissioner of Internal Revenue should track business refund processing, such as through IRS's weekly performance tracking. (Recommendation 2)
Open
IRS disagreed with this recommendation. In February 2021, IRS stated that it tracks, and management uses, information on the timeliness of business refund processing, and that a report to track business refunds will not be a useful mechanism for reducing interest on business refunds. We maintain that this recommendation is valid. During our review, IRS could not tell us the extent to which business tax refunds were delayed during the 2020 filing season because it does not monitor and report on this information. As a result, IRS does not know how well it is processing business returns with refunds, or the extent to which it will have to pay refund interest, which was $3 billion in fiscal year 2020. We will continue to monitor this issue.
Internal Revenue Service The Commissioner of Internal Revenue should conduct an assessment to comprehensively identify barriers taxpayers face to e-filing business-related returns. (Recommendation 3)
Open
IRS agreed with this recommendation and in February 2021 described the steps it planned to take to address it, including conducting an assessment to identify barriers to e-filing for business taxpayers. We will continue to monitor IRS's progress in addressing this recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should, after completing the barrier assessment in recommendation 3, determine what actions IRS could take to address the barriers and implement those actions, as feasible. (Recommendation 4)
Open
IRS agreed with this recommendation and in February 2021 described the steps it planned to take to address it, including conducting an assessment to identify barriers to e-filing for business taxpayers. We will continue to monitor IRS's progress in addressing this recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should identify and consider implementing actions to transition staff currently on weather and safety leave to active work status, as appropriate. This could include reassigning staff to other tasks that can be performed remotely. (Recommendation 5)
Open
IRS disagreed with this recommendation. In February 2021, IRS stated that it has taken all reasonable steps to identify work that can be made portable and have assigned it to employees that had previously been on weather and safety leave and could not report to IRS facilities due to their inclusion in medically certified high-risk categories. Shortly after providing this information, IRS recalled all employees that were on weather and safety leave to return to IRS offices in preparation for the start of the 2021 filing season. In March 2021, IRS officials stated that they continue to identify telework for employees, as appropriate, but did not provide further details. IRS's continued efforts to identify alternate work assignments for staff who cannot report to the office but are able to telework--such as performing administrative tasks, other operational functions, or training--will help ensure that IRS is positioned to meet its operational demands. We will follow-up with IRS to determine what additional actions it has taken.
Internal Revenue Service The Commissioner of Internal Revenue should identify and document all risks to the 2021 filing season; conduct a comprehensive risk assessment, including determining the likelihood of these risks occurring and potential impact of these risks on IRS's ability to carry out its mission-essential functions; and identify options to respond to each identified risk. (Recommendation 6)
Open
In February 2021, IRS agreed with this recommendation, but stated that it planned no further actions. IRS said that it had implemented actions to document risks to the 2021 filing season and had completed a risk assessment. For example, IRS stated that the Filing Season Readiness Executive Steering Committee had developed a risk register statement and corresponding strategies to address items that could impact the integrity of the 2021 filing season. After receiving our draft report, in January 2021, IRS provided us with several monthly reports describing the impact of COVID-19 on its filing season operations and its recovery efforts. According to IRS officials, these documents indicate that IRS considered some COVID-19-related risks to the 2021 filing season prior to October 2020 that it did not document in the filing season planning documents that it previously provided us. In addition, in February 2021, we followed up with IRS to obtain more information on its recent risk management efforts. We will continue to review the additional information IRS provided to determine if the agency's actions are sufficient to address this recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should, after completing the comprehensive risk assessment in recommendation 6, monitor risks, and communicate IRS's plans to manage risks and provide status updates to stakeholders. (Recommendation 7)
Open
In February 2021, IRS agreed with this recommendation, but stated that it planned no further actions. After receiving our draft report, in January 2021, IRS provided us with several monthly reports describing the impact of COVID-19 on its filing season operations and its recovery efforts. IRS stated that its monthly reports provided opportunities for continued risk management of the 2021 filing season. However, IRS did not indicate how it would communicate its plans to manage risks and provide status updates to stakeholders. As we noted in our report, informing both internal and external stakeholders of its plans to address identified risks promotes transparency and confidence that the agency is effectively managing risks. We will continue to follow-up with IRS on its actions to monitor risks and communicate its plans to manage risks and provide status updates to stakeholders.

Full Report

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