Every year, the Taxpayer Advocate Service (TAS) releases its Annual Report to Congress, shining a spotlight on the most pressing issues taxpayers face. The 2024 report highlights systemic challenges that create unnecessary burdens for taxpayers and strain the IRS’s ability to fulfill its mission. Here’s a summary of the ten most serious problems taxpayers encountered in 2024 and their implications for the tax system.
1. Employee Retention Credit (ERC) Delays
The Employee Retention Credit (ERC), meant to provide relief during the COVID-19 pandemic, has become a source of frustration. As of late 2024, over 1.2 million claims remained unprocessed due to a moratorium and delays caused by IRS concerns over improper claims. On average, ERC claims now take more than a year to process, leaving businesses in financial uncertainty.
2. Return Processing Bottlenecks
The IRS continues to struggle with return processing, particularly for paper and amended returns. Taxpayers reported issues such as rejected electronic returns, delayed refunds, and difficulty addressing errors post-filing. With only 58% of paper returns scanned electronically in 2024, the backlog remains a significant problem.
3. Identity Theft Delays
Victims of tax-related identity theft face significant hardships, waiting an average of 22 months for case resolution. This prolonged process leaves many without timely refunds or financial relief, compounding the stress of being a victim of fraud.
4. Poor IRS Service
Taxpayers seeking assistance from the IRS often encounter delays, unhelpful communication, and limited access to support. During the 2024 filing season, only 32% of callers successfully reached an IRS representative, underscoring the need for improved customer service infrastructure.
5. Tax-Related Scams
Tax scams remain a pervasive threat, with victims often experiencing frozen refunds and financial insecurity. By the end of 2024, nearly 739,000 taxpayers were waiting for the IRS to unfreeze their refunds due to suspected fraudulent activity.
6. Hiring and Workforce Retention
The IRS struggles to hire and retain qualified employees, with attrition rates for customer service representatives at 19% in 2024. Compounding the issue, 63% of the IRS workforce will be eligible for retirement within six years, threatening the agency's long-term capacity to serve taxpayers.
7. ITIN Processing Inefficiencies
The IRS’s refusal to digitize the Individual Taxpayer Identification Number (ITIN) application process has led to long delays and inconsistent application treatment. With over a million ITIN applications received annually, the manual, paper-based process creates inefficiencies that negatively impact taxpayers and the agency.
8. Tax and Financial Literacy Gaps
Low tax literacy among U.S. taxpayers exacerbates compliance issues and financial consequences. A Tax Foundation survey revealed that over 61% of respondents lacked basic knowledge of income tax filing concepts, underscoring the need for better taxpayer education initiatives.
9. Civil Penalty Inconsistencies
Although penalties are essential for tax compliance, the IRS’s inconsistent administration undermines taxpayer confidence. Over 55% of accuracy-related penalties proposed between 2018 and 2022 were either overturned or abated, highlighting the need for more fair and transparent practices.
10. Criminal Voluntary Disclosure Challenges
Recent changes to the IRS’s criminal voluntary disclosure practice (VDP) have left taxpayers uncertain about how to achieve compliance. Since 2019, the IRS has completed only 161 VDP cases, raising concerns about the program’s effectiveness in promoting voluntary compliance.
What Taxpayers Can Learn from These Challenges
The 2024 TAS report underscores the importance of proactive tax planning and engagement:
File Electronically: Avoid delays by submitting returns electronically.
Monitor IRS Accounts: Regularly check for notices or activity that may signal identity theft or errors.
Stay Educated: Improve tax literacy to make informed decisions and avoid unnecessary penalties or scams.
Seek Professional Help: Work with trusted tax professionals to navigate complex processes like ERC claims or tax resolution matters.
While the IRS and TAS work to address systemic issues, taxpayers must take steps to protect themselves and their finances.
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