The IRS, already dealing with a significant backlog of tax returns and taxpayer correspondence, is scrapping plans to consolidate the number of facilities that process its paper workload.

The IRS is canceling plans to close its Tax Processing Center in Austin, Texas, a move that the National Treasury Employees Union (NTEU) says will help the agency address its backlog of returns, continue processing new ones and improve the overall level of service to taxpayers.

NTEU urged the IRS to reconsider plans to close the site in Austin since May 2021, because the agency was already struggling with backlogs and staffing shortages.

More recently, the Treasury Inspector General for Tax Administration (TIGTA) urged the IRS to delay plans to close the center, while the National Taxpayer Advocate urged the agency to do more to address its paper-based workload.

National Taxpayer Advocate Erin Collins told the Senate Finance Committee on Thursday that “paper remains at the heart of the IRS’s challenges in the processing of returns,” and urged the IRS to address a largely paper-based backlog through maximizing its workforce, outsourcing some of the processing work to a third-party vendor and automating some of the manual processing of paper tax returns.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) said “decrepit technology used by the IRS” was a root cause for the IRS’s taxpayer service problems.

Wyden pointed to a recent TIGTA report, which found the IRS last fiscal year lost $56 million in opportunity costs because of “untimely check deposits.”

“The IRS gets a lot of mail, and some of it includes physical checks sent by taxpayers. The problem is the machines that scan and sort the mail are way out of date and unable to properly handle the envelopes that contain checks,” Wyden said at Thursday’s hearing.

The IRS announced plans in 2016 to consolidate all of its submission processing work from five sites to two.

Most recently, the IRS in September 2021 closed its processing center in Fresno, California.

NTEU said the closure forced thousands of employees to find other IRS jobs, retire or leave the agency.

The agency previously planned to close its Austin site in September 2024, which would have left only Ogden, Utah and Kansas City as the remaining two processing centers.

NTEU President Tony Reardon said Thursday that keeping the Austin site open is “essential to the agency’s ability to dig out from the backlog of returns and correspondence, and that there is an ongoing need for the IRS to retain this capacity,”

“Keeping Austin’s submission processing operation open for business is a smart decision, but it will not by itself alleviate the backlog and improve customer service. We still support proposals to increase IRS funding for staffing and modernization and rebuild the agency after 10 years of budget cuts,” Reardon said.

TIGTA said the IRS is having troubling staffing up to deal with its current workload. TIGTA finds the IRS last year only met 67% of its hiring goal at its tax processing centers, and needs to hire nearly 2,600 more employees to reach adequate staffing levels.

TIGTA recommended the IRS postpone plans to close its Tax Processing Center in Austin until the IRS addressed its hiring challenges and backlog shortages. But the IRS management initially disagreed with that recommendation, and expected to still close the center in 2024.

National Taxpayer Advocate Erin Collins told the committee that last year’s filing season was “the most challenging year” taxpayers and tax professionals have ever encountered. She said millions of confused and frustrated taxpayers are still waiting for their refunds from the last filing season.

Collins said a “toxic combination” of office closures at the start of the pandemic, inadequate staffing, antiquated IT systems and the need to divert resources from core work to administer COVID-19 programs — including Economic Impact Payments and the expanded child tax credit — created “an unprecedented imbalance between the IRS’s workload and its resources.”

During the past 18 months, Collins said the inventory backlog “has continued to snowball” at the agency.

“We need to put the processing backlog behind us, and get the IRS out of the hole it finds itself in, and get the IRS to a stable and healthy condition so it can perform its core mission,” Collins said.

The IRS received more than 170 million individual tax returns last year, and about 90% of them were filed electronically. But Collins said the agency struggled to process the remaining 17 million paper returns, and that taxpayers who filed on paper have waited up to 10 months to get their returns processed.

“Paper remains at the heart of the IRS’s challenges in the processing of returns … The IRS still transcribes a paper line-by-line, number-by-number,” Collins said.

Jessica Lucas-Judy, the director for strategic issues at the Government Accountability Office, said the IRS has converted seasonal workers to permanent hires, rehired former staff and used a streamlined hiring approach to increase staffing.

But Lucas-Judy said the agency ran into challenges hiring enough new returns processing staff during FY 2021.  Meanwhile, she said the attrition rate for returns processing staff is more than twice the agency’s overall rate.

Lucas-Judy said the IRS expects to rely on overtime to address the backlog in the short term, but said this reliance on overtime may “indicate a larger need for a strategic workforce plan that addresses mission-critical skills gaps.”

GAO recommended such a plan in 2019, and IRS agreed with the recommendation. However, Lucas-Judy said agency efforts to draft such a plan are delayed.

“We recognize overtime necessary to help manage unexpected surges in workload, but it’s not sustainable to rely primarily on overtime to offset complex human capital challenges, such as reduced staffing levels and attrition,” Lucas-Judy said.

IRS recently announced has an inventory “surge team” of 1,200 employees assigned to accounts management to help process amended returns and correspondence.

Collins called that surge team an “important first step,” and said the agency is now establishing a second surge team “to put additional resources on the processing challenges.”

Collins said the IRS has more than 60 legacy IT systems, some going back decades, that aren’t able to communicate with each other, and prevents IRS from having a full picture of a taxpayer’s status when they call or write the agency.

The IRS has repeatedly called on Congress to authorize multi-year funding to support IT modernization efforts, but lawmakers have not yet fulfilled that request.

“They do have a plan. I believe they have a price tag associated with the plan. I think their concern is, it is a very large dollar [amount], that they cannot start it without multi-year funding … Unfortunately a large percentage of their budget goes to putting the Band-Aids on the 60 legacy systems,” Collins said.

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