The top IRS watchdog looking out for taxpayers says the agency is 'in crisis' and buried in paper — and that she's worried about long refund delays for 2022

• The top IRS watchdog is raising alarm over the coming filing season.
• She's expressed concern about long refund delays for many Americans.

National Taxpayer Advocate Erin Collins is sounding the alarm on a deeply backlogged IRS and saying she's "deeply concerned about the upcoming filing season."

The IRS watchdog released her annual report for 2021 today, saying that the "IRS is in crisis." One of the most serious problems in 2021: delays in processing and refunds. In mid-December, the IRS had nearly 5 million pieces of correspondence — and 6.2 million unprocessed individual returns.

That processing back-up means that millions of filers are still waiting on refunds. Those are predominantly paper filers, although the watchdog also said some electronic filers are still awaiting checks. Paper returns are taking at least eight months to process, according to the report.

The report comes after Treasury officials warned about a difficult filing season, pointing to decades of historical underfunding and understaffing. The Tax Policy Center found that the IRS's budget has fallen by over 20% in the last decade alone.

The IRS went into 2021 with 11.7 million backlogged returns from 2020, with not all of them getting processed until June 2021.

All of that means that the millions of Americans who receive tax refunds — 77% of individual taxpayers got them in 2021 — could be staring down even more delays in 2022.

"Some of these refunds contain COVID-19-related relief that Congress provided taxpayers over a year ago but for which they are still waiting," the report said. "For other taxpayers, their refund may provide critical funds for basic living expenses or for employee payroll. And for many taxpayers, their unprocessed tax returns are impacting their ability to obtain a mortgage, refinance their house, or obtain student loans."

For the average family who gets a refund, those refunds are about nearly six weeks of take home income, according to a 2019 JP Morgan Chase Institute study. And, for nearly half of refund-receiving families, refunds are greater than the balances they have in their cash accounts. After those families get their refunds, they triple their spending on things like goods and bill payments.

"They're beleaguered," House Ways and Means Committee Chair Richard Neal told Insider, referring to the IRS. "This is two decades of cutbacks."

Sen. Dianne Feinstein of California called on President Joe Biden to funnel emergency funding for the agency. She wrote in a letter that "requesting immediate emergency supplemental funding would be a timelier way to help the IRS rebuild its capacity to efficiently process taxpayers' returns, refunds and questions."

Sen. Ron Wyden of Oregon of the powerful tax-writing Senate Finance Committee didn't rule out pushing for Americans to get more time to file taxes on Tuesday.

IRS commissioner Chuck Rettig said in a statement on Monday that "IRS teams have been working non-stop these past several months to prepare" for the filing season. He also stressed the importance of going paper-free and filing electronically — a recommendation that's particularly prescient as the IRS stares down mountains of paper correspondence.

"Paper is the IRS's kryptonite," Collins said, "and the agency is still buried in it."

Would a delayed tax refund impact you? Do you have a refund story or concern to share? Contact these reporters at jkaplan@insider.com and jzeballos@insider.com.