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When Congress passed big coronavirus response bills back in late March, the IRS was among the agencies most affected. It had to totally redo the 2020 filing season while figuring out how to issue some $157 million stimulus checks. So how did it do? For some answers the Federal Drive with Tom Temin turned to the associate Treasury inspector general for tax administration, Russ Martin.

Interview transcript:

Tom Temin: Mr. Martin, good to have you on.

Russ Martin: Thank you. Nice to be on.

Tom Temin: So you took kind of a snapshot in time of the IRS. And my overall reading is that they didn’t do so badly with all of this, but give us your summary.

Russ Martin: I think they did really well. Each year we conduct what we call an annual filing season review, and this year because of the COVID-19, it required IRS to take some drastic actions to protect the health and safety of its employees, one of which was closing down its tax processing centers and its other offices that provide customer service. So each year beginning in April, we issue an interim report and then we Issue our final report at the end of the calendar year. This year, because of the closure of the tax processing centers, as well as new legislation that required IRS to implement provisions to provide relief to individuals and businesses, we decided to issue the interim report that you are referring to. And that basically took a look at a snapshot of time: IRS starting to reopen this operations, what do the backlogs look like, meaning how much unopened mail, how many phone lines are still not being fully staffed. Then we also wanted to look at their implementation of provisions of the CARES act. One of the big ones is the issuance of the economic impact payments, but on the business side, there’s also credits that were included in the legislation to provide relief to businesses. So we took a look at IRS’s implementation of processes and procedures to issue those credits. And remarkably with the closure of their sites, they moved to, as much as they could, a remote-type work setting. So when the sites were closed, they were still implementing these provisions to timely issue payments and to provide the relief to businesses that they were entitled to through the legislation.

Tom Temin: Essentially, they had to take their main business at hand, which was getting ready for the tax filing season, set it all on ice almost, by delaying it to July and possibly again, and they had to start up, basically, two brand new businesses on a short-term basis to disperse money rather than take it in. That’s a good way to summarize it?

Russ Martin: It is a good way to summarize it. They’ve issued stimulus payments in the past, but the complexity there is that they were trying to do it in almost like a virtual environment. And I think, as our report shows, they did a pretty remarkable job.

Tom Temin: Do you get the sense that they might have been working around the clock for some period of time to be able to accomplish all of this?

Russ Martin: I would definitely say that’s the case. I mean, the legislation was passed and they issued payments pretty quickly after the legislation that required the issuance of those payments. So, they had to perform some complex reprogramming of their systems, they developed online tools for taxpayers to inquire as to the status of their payments, they worked on developing a notice that was required by the CARES act to provide you every single individual that got a payment with their payment amount, how it was calculated, etc. So I’m pretty confident that they worked some extensive hours to get this done.

Tom Temin: And of course, those of us like me who’ve been following this kind of thing for about 30 years, I think I said at the outset, it will come out that some money went to people that are dead or that didn’t qualify, and then this will be a big blow up. And of course, it was inevitable that this came out in the press and not to say that that is okay. But as a percentage, it’s pretty small. And in some sense, it really isn’t the IRS’s total responsibility given the data that they had to act on for issuing checks. Correct?

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Russ Martin: As our report details, and I think you’re referring to the checks that went to deceased individuals and prisoners. As our report indicated, we developed a process where we married IRS’s programming and we matched payment for payment to identify ones where there was a discrepancy between our amount and their amount, etc. So early on in the process, we issue what we call email alerts. We send notification to IRS, we’re seeing checks go into deceased individuals and prisoners. They came back and indicated, “Well, the CARES Act doesn’t prevent that.” A couple cycles later, they changed their position and they halted issuing payments to deceased individuals and prisoners. So what our next phase is, which is an important caveat that we put in our report, all we have in the report is what was issued. That doesn’t include rejected direct deposits. It doesn’t include returned paper refund checks. So our next phase of our audit is to do that reconciliation to see exactly what the bottom line is. There was likely economic impact payments that went out that the account was no longer valid. So it rejected. There was also, when we brought it to IRS’s attention, they put on irs.gov instructions on how individuals could return those payments. Individuals were inquiring, “I got this payment, what should I do with it?” The issue with the return payments is they have such a backlog at the tax processing centers, that when individuals are mailing those back, it’s going to take some time for IRS to identify those and then reverse those on those accounts. So take the has plans to continue to do this review to look at that reconciliation, to ultimately get to a bottom line.

Tom Temin: We’re speaking with Russ Martin. He’s associate inspector general and the Treasury inspector general for tax administration. And that was my question: We really don’t know, then, the total outside boundaries of the improper payments, or how much is recoverable yet at this point, do we?

Russ Martin: That’s an accurate statement. But that’s part of our continued testing that we’re going to do, right? Right now the first phase was to basically take a look and make sure that the payment amount was accurately computed. Our next phase is to look to make sure all eligible individuals receive the payments that they were entitled to. And then the third phase, which continues on into the next filing season, is the whole reconciliation.

Tom Temin: Got it. And then there is still the 2020 or the, you know, based on the 2019 income, the filing season. And what’s the status of that now, because the deadline was just a week ago or so?

Russ Martin: Right. So I think you’re referring to where the revised day for tax return filings was July 15, as well as payments. We’re looking at that right now. The challenge, IRS has, is significant backlogs in all the aspects of its operations at the same time trying to process those returns that are coming in. Our discussions with IRS shows that they do have a prioritization of returns and payments. So we’re looking at that right now. And we’re involved in monitoring the reductions of the various correspondence on open mail, etc., backlogs. But there is a significant challenge ahead for IRS.

Tom Temin: Yeah, because at some point they back up into the 2020 filing season, that is the early 2021 processing that they’ll have to do and you can’t delay this year’s filings too much, or you’ll lap one another.

Russ Martin: And that’s something that we’re concerned about, and we are looking at it, and that is definitely a huge concern. And I mean, this this past filing season is like no other. I’ve been in TIG here for almost 31 years now, and I’ve never seen this situation. So it’s definitely a challenge. And, we’re trying to monitor it and make recommendations to improve the operations for IRS.

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Tom Temin: And here’s a question that’s not really addressed in the report. But having watched it for all these years, you probably have a sense of this, and that is they have been on a modernization drive for at least 30 years, and there has been been some disappointments in that drive. But there’s also been a lot of progress if you look at it objectively. Do you think if this had happened 20 years ago, they would have been in the position they’re in now, which, as you say, is, “Not bad, guys, pretty good.”

Russ Martin: That’s a tough question to answer. Here’s what I’ll say. They do a really good job with a lot of online tools that really help taxpayers out. They also are now allowing the electronic filing of amended returns, which previously those had to be filed on paper. And my area has another review where we’re looking at as part of legislation, they are developing a customer service strategy, and I think that they’re, you know, complements of them. They’re using the lessons learned from this current pandemic, to change operations, meaning previously if we had someone send in correspondence to the IRS via mail, hey, why don’t we offer them a ability to e-fax something into the IRS? So I think that they’re using this opportunity to move not so much the massive part of modernizing tax return processing, you know, we have another area in my shop that looks at that. But as far as those tools to provide better customer service, I think we’re seeing those and they’ve continually done those along the way.

Tom Temin: And getting back to the report at hand. You did not make recommendations, but I guess that’s traditional for the investigations that you do at this time of year?

Russ Martin: Yes, you’ll see throughout the report, we refer it. We look at these reviews as real time meaning we’re right in there when IRS is doing what they’re doing. And we’re making essentially recommendations through what we call informal email alerts. So we identify a situation. We have a good working relationship with IRS, we send it to them saying, “Hey, we’re identifying this situation. Can you take a look at it? Do you agree with it? And let us know the actions you’re taking.” So you’ll see throughout the report, we refer to those email alerts. For example, individuals don’t have any direction on what to do if they get a check and they want to return it. OK, we would issue an email alert to IRS. They update irs.gov with those procedures. So that informal quickness is needed in these types of reviews and that’s what we do for these interims. And then when we do our final filing season report, that’s where we have the recommendations were: “They weren’t able to take action during the time we notified them. They’re very good about taking actions to correct programming, etc.,” along the way, and as a result that saves on taxpayer burden, reduces improper payments, etc. So you’ll see throughout our report, various areas where we’ve issued email alerts, and they’ve taken action on those.

Tom Temin: Russ Martin is associate inspector general and the Treasury inspector general for tax administration. Thanks so much for joining me.

Russ Martin:
You’re very welcome. Thank you for having me on.

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