• After another challenging year in 2022 for the IRS, the agency may be primed for a better 2023 tax season, according to the National Taxpayer Advocate.
• Last year, the IRS made "considerable progress" reducing the backlog of unprocessed returns, the organization said in its annual report to Congress.
• However, the Taxpayer Advocate says agency improvements may take time.

After another challenging year for the IRS in 2022, the agency may be primed for a better 2023 tax season — but improvements may take time.

The National Taxpayer Advocate on Wednesday released its annual report to Congress covering last year's biggest issues at the IRS, which includes recommendations to fix these problems. 

"The bad news is that taxpayers and tax professionals experienced more misery in 2022," wrote National Taxpayer Advocate Erin Collins. "The good news is that since the close of the 2022 filing season, the IRS has made considerable progress in reducing the volume of unprocessed returns and correspondence."

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The IRS started 2022 with an unprocessed paper backlog of 4.7 million original individual returns, 3.2 million original business returns and 3.6 million amended returns, according to the report. By Dec. 23, the paper backlog was down to roughly 400,000 individual returns and about 1 million business returns.

Based on this progress, the report finds the IRS is "poised to start the 2023 filing season in a stronger position."

During the past two seasons, the IRS couldn't tackle current-year paper-filed returns until after the filing season ended. But the "significant reduction" of inventory in 2022 will allow the agency to process paper returns during the filing season, the report said.   

"We have begun to see the light at the end of the tunnel," Collins wrote. "I am just not sure how much further we have to travel before we see sunlight."

While the report expressed optimism about the reduced backlog, increased IRS funding to boost staffing and the agency's new direct hire authority, Collins warned that improvements won't happen immediately, especially as new workers are added and trained.

"The IRS needs to end the vicious cycle of paper backlogs," she said. "As employees are trained and report for duty, I expect we will start to see improvements in service, probably by the middle of 2023."

The report comes as House Republicans passed a bill to cut funding for the IRS, following a pledge from newly elected Speaker Kevin McCarthy to repeal the money approved by Congress last year.

The bill would rescind tens of billions of dollars allocated to the agency over the next decade through the Inflation Reduction Act passed in August. However, the measure doesn't have the support necessary from the Democratic-controlled Senate or the White House in order to be enacted.