IRS Commissioner Charles Rettig told House members during a hearing yesterday that the IRS will process its backlog of unprocessed tax return filings by the end of 2022.

Nearly 10 million 2020 and 2021 tax returns were unprocessed as of December, meaning paper returns have not been opened and returns have not been entered into the IRS’s master list, according to the most recent data provided to Congress by the Treasury Inspector General for Tax Administration (TIGTA).

Taxpayers and their representatives have widely reported receiving IRS fines, penalties and lien notices for returns and payments that the IRS has failed to process.

Acting House Ways and Means Committee Chair Rep. Judy Chu (D-Calif.) asked Rettig if the IRS's recent implementation of "surge teams" of employees reassigned to process taxes would help the agency clear its backlog by December.

"Absolutely before December," Rettig testified. "As of today, barring any unforeseen circumstances ... if the world stays as it is today, we will be what we call healthy by the end of calendar year.”

Chu also asked about the IRS's recently announced direct-hiring authority and its plan to hire as many as 10,000 workers to address the backlog.

According to a recent U.S. Government Accountability Office report, the IRS has lost some 17% of its workforce to attrition in the past two years. Chu asked what Rettig is doing to replace agents and workers.

Rettig said the IRS is competing with the private sector, which “can bring somebody on board the next week, and with us, it's been a six- to eight-month process.” He said he hoped that direct-hire authority would enable the IRS to shorten its hiring process to a 30 to 45 days.

President Joe Biden signed an executive order raising the IRS starting wage to $20 an hour last year, but “up until the president's executive order, we were at $14.57," Rettig said.

Lawmakers also asked why the agency is not ramping up its audits of large corporations.

“We do not have the resources to go after the bigs or the superbigs, as we refer to them, and we get outgunned routinely in that space,” Rettig said.

About 0.3% of corporate tax returns filed in 2018 were audited, according to the IRS. That’s down significantly from its 2010 1.4% audit rate.

Biden proposed giving the IRS an additional $80 billion over the next 10 years to ramp up the agency’s audit and enforcement divisions to go after tax cheats in his Build Back Better plan, which is stalled in the Senate.

Two lawmakers asked Rettig about the IRS’s backlog for processing employee retention credit (ERC) claims, which they said hurts small businesses.

Rep. Carol Miller (R-W.Va.) said some employers claiming an employee retention tax credit from as long ago as the first quarter of 2021 are still waiting to receive it.

Kevin Hern (R-Okla.) asked Rettig if he would halt automated taxpayer notices and provide penalty relief for ERC claimants on 2022 filings of payroll tax returns.

Until that happens, “what this means is taxpayers are paying taxes on income they have never received," Hern said. "Not only are small businesses liable for the tax on reduced wages, but [they] are also liable for the safe harbor on their estimated taxes, which is inflated due to the reduced wages."

Rettig did not answer Hern’s question, but said the IRS has suspended a number of automated notices and that taxpayers or their representatives could always ask for penalty reductions or elimination.

Separately, 100 lawmakers sent Rettig a bipartisan letter asking him to identify what notices the IRS has still not suspended. They also want to know why the “Notice of Underreported Income” has not been suspended.

The IRS previously identified 10 notices it had suspended, admitting in some cases it had issued them without knowing if taxpayer returns were in the agency’s unprocessed backlog. The agency said, however, that it lacks the authority to suspend any more notices.