From the U.S. Government Accountability Office, www.gao.gov Transcript for: The Challenges Facing IRS Before and During COVID-19, And What It Means for Taxes in 2021 Description: The IRS processes more than 150 million individual and business tax returns each year. While the IRS has modernized its process to allow for electronic filings, several key functions remain paper-based, including about 40 percent of business-related tax forms. In addition, during the 2020 filing season, the IRS faced a number of challenges providing help to taxpayers, and processing tax returns because of COVID-19. We talk with GAO's Jessica Lucas-Judy to find out more. Related GAO Work: GAO-21-251, Tax Filing: Actions Needed to Address Processing Delays and Risks to the 2021 Filing Season Released: March 2021 [Intro music:] [Jessica Lucas-Judy:] Addressing the recommendations in our report will help IRS provide better customer service and be able to process tax returns in a timely way. [Holly Hobbs:] Hi and welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office-- celebrating 100 years of fact-based, non-partisan government oversight. I'm Holly Hobbs. The IRS processes more than 150 million individual and business tax returns each year. While the IRS has modernized its process to allow for electronic filings, several key functions remain paper-based, including about 40 percent of business-related tax forms. In addition, during the 2020 filing season, the IRS faced a number of challenges providing help to taxpayers, and processing tax returns because of COVID-19. Today we talk with Jessica Lucas-Judy--an expert on Tax Policy and a director in our Strategic Issues Team--about a new report that looks at some of these challenges facing the IRS. Thank you for joining me, Jessica! [Jessica Lucas-Judy:] Thanks for having me, Holly. [Holly Hobbs:] So Jessica, can you give us some examples of challenges the IRS faced this year because of COVID? [Jessica Lucas-Judy:] The filing season typically opens late-January. And January 2020 and early-February 2020, things were going along pretty well. And then, of course, the pandemic hits and everything started shutting down. But even before then, IRS was dealing with some of the long-standing challenges that we've reported on in the past. And this included things like difficulty hiring enough seasonal workers to be able to handle the influx of mail and tax returns and refunds and phone calls. Legacy information technology systems--for example, their core tax filing system is about 60 years old. They have a lot of paper forms, a lot of paper and in-person processes. The same staff have to handle the mail and handle the phones. There are last minute changes to the law that IRS then has to incorporate into forms and instructions. So all of those things were already there. And then when the pandemic hit, that just exacerbated the problem. [Holly Hobbs:] And so the IRS also, typically, provides in-person assistance to folks who need help with their tax returns. How were those services impacted? [Jessica Lucas-Judy:] For the safety of employees and taxpayers, IRS closed all of its in-person operations. They shut down everything in late-March. They began reopening in June and by early-December they had about three-fourths of their centers that were open. Those were fully operational, but with fewer staff and limited hours. So that did have an effect on the ability to get services in-person from the IRS. [Holly Hobbs:] Beyond extending the tax filing season to July in 2020, what other changes did the IRS make in response to COVID-19? [Jessica Lucas-Judy:] So as I mentioned, they closed their processing centers, their assistance centers. They directed employees who were able to telework to telework. They also paused enforcement and collection. Again that was both for their own staff as well as to provide some relief to taxpayers. They closed their live telephone lines for a while. They were able to get most of those fully operational by the end of the filing season in July, but still with longer wait times than usual. And because they had fewer people answering phones and the in-person services weren't available, IRS put more information on its website. [Holly Hobbs:] So, while this was happening, IRS was also responsible for distributing economic relief checks to individuals as part of the pandemic response. How did that extra workload impact the IRS, and were there any issues in distributing those payments? [Jessica Lucas-Judy:] It didn't have too much of an effect on IRS's filing season operations because those were primarily different staff. One thing that was related to the filing season is if there were any delays in processing 2019 tax returns because those were the things that the economic impact payments were based on. And so, if someone filed on paper and their paper return was caught up in IRS's backlog, or if there was an indicator of potential fraud or identify theft or missing information, and that return couldn't get processed, this person may not have gotten their payment on time. Now, they will have a change to fix that when people are filing their 2020 tax returns. If they didn't get their full economic impact payment, they can file for what's called a recovery rebate credit. And IRS is putting out information on how to do that on its website. [Holly Hobbs:] So Jessica, we're entering year 2 of the COVID pandemic. What challenges could IRS face in 2021? [Jessica Lucas-Judy:] Well, as I mentioned they are still facing a backlog from some of the returns and correspondence that came in during the last filing season. And that's one of the things that we made a recommendation about in our report--that IRS needed to update its estimates for dealing with the backlog of work. They did not fully incorporate all of the risks that came from the 2020 filing season, the pandemic, the need to work remotely. Didn't fully incorporate that into their assessment of risk. And we recommended that they do so. [Holly Hobbs:] So, it sounds like the IRS faced a number of challenges caused by COVID-19, and that it made changes to help address delays in processing tax returns. But that a number of challenges still remain for the 2021 filing season. Jessica, since electronic filing seems to be less impacted by the pandemic, is IRS doing anything to increase the use of e-filing? [Jessica Lucas-Judy:] E-filing is definitely easier for most taxpayers. And for the IRS and less costly, fewer opportunities for error. IRS received and processed more electronic filed returns this past year than in any other prior filing season. But we still found that the use of electronic filing by businesses was low. So we recommended that IRS identify and address any barriers to electronic filing for businesses to try and address this moving forward. [Holly Hobbs:] So, did we make any other recommendations to IRS to help it prepare for the 2021 tax filing season? [Jessica Lucas-Judy:] One of the things we did recommend is that IRS identify alternative work arrangements for stay who are on what they call weather and safety leave. IRS was able to get laptops out and make work portable for as many staff as it could. But there were still a number of staff, particularly in their returns processing area, who were on weather and safety leave and have not been able to work much since the pandemic. And so, we made a recommendation that IRS try to identify other types of work or work arrangements that some of those staff could do to help it maintain operations. [Holly Hobbs:] And last question, Jessica--what's the bottom line of this report? [Jessica Lucas-Judy:] IRS, in general, did a great job adapting to the pandemic. But they're moving into the 2020 filing season with a significant backlog of payments and returns and correspondence, and a number of staff who are still not able to work at full capacity. Our report identifies 7 recommendation that IRS can do to help it better prepare for 2021. Addressing the recommendations in our report will help IRS provide better customer service and be able to process tax returns in a timely way and get refunds out taxpayers are owed. [Holly Hobbs:] That was GAO's Jessica Lucas-Judy talking about a new report that looked at how the IRS was impacted by COVID-19 and our recommendation to prepare for the 2021 tax season. Thank you for your time, Jessica! [Jessica Lucas-Judy:] Thanks very much! [Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. And make sure you leave a rating and review to let others know about the work we're doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.