We have periodically reported about the IRS’s backlog of unprocessed tax returns. The IRS commissioner has reported that all current filings are being addressed as received and the IRS is diligently working on the backlog of returns. The depth of the backlog has hit an all-time high.
Interest-Free Loans Taxpayers Give to the U.S. Treasury
Historically, some taxpayers like to overpay their taxes during the year as a means of forced savings. Come April 15, they receive a significant income tax refund from the IRS. This is tantamount to giving the IRS an interest-free loan. If the taxpayer had placed these funds in an interest-bearing account, their “bonus money” come April 15 would be greater that the tax refund because the IRS does not pay interest when a taxpayer overpays their taxes during the year. Due to concerns about ID theft and the increased algorithms the IRS uses to thwart ID theft, these refunds are often delayed by weeks or months. The situation has been exasperated by all of the recent problems of the IRS starting with its close during the pandemic and agents working remotely and its workforce reaching their retirement age.
Amended Tax Returns
Taxpayers sometimes make a mistake when filing their original tax returns. They may fail to include a Form 1099-R that they had forgotten, or their financial advisor sends them an amended 1099 to reflect corrected gains/losses on sale of securities, or changes to interest or dividend income previously reported. There are countless reasons why taxpayers may need to file an amended return. Most recently, there was much confusion about reporting unemployment compensation benefits. The IRS sometimes directly deposited these benefits in the taxpayer’s checking account, or the taxpayer simply did not provide their tax professional with the IRS notice showing the amount of benefits received. Hence, there were numerous (millions) amended returns filed in the past year. Taxpayers followed IRS guidance to go to its website and ask “Where is my refund?” only to be frustrated. If the taxpayers called the IRS Form 1040 hotline, the waits were very long and often the calls were automatically dropped by the IRS computers due to the backlog of calls.
Role of Taxpayer Advocate Office
The Taxpayer Advocate Office (TAO) branch of the IRS is an independent branch of the IRS that assists taxpayers who are having problems with the IRS and are experiencing a financial hardship due to the actions or inactions of the IRS. The taxpayer files Form 911 with the TAO who investigates the matter and nudges the IRS personnel to get their act in order. Due to the millions of taxpayers that were due a refund and had not received it, and their frustration of dealing with the IRS’s normal means of communication, these taxpayers contacted the TAO for assistance. This type of situation is exactly what the TAO handles.
TAO No Longer Helping with Amended Tax Returns
BUT, the backlog of millions of unprocessed tax returns at the IRS has prompted the TAO to reject requests for assistance where the only issue involves amended returns through the end of the year.
National Taxpayer Advocate Erin Collins, who runs the TAO at the IRS, announced the move in a blog post. The IRS has been facing a backlog of unprocessed tax returns since the start of the pandemic last year, when millions of pieces of unopened mail piled up outside IRS facilities. IRS officials have told Congress they have mostly caught up with the unopened mail, but the processing of all the tax returns is another matter.
The TAO was inundated with requests for help and has been unable to get the IRS to process the amended returns any faster, so it has made the decision not to accept requests when the decision only pertains to amended returns, at least through the end of December.
“Under our current procedures, TAS does not accept cases in which we cannot meaningfully expedite or improve case resolution for taxpayers,” Collins wrote. “Amended returns fall into this category. Due to the broad impact of COVID-19, the IRS has faced significant challenges in all its return processing operations. Unfortunately, until the IRS processes a tax return, TAS cannot assist the taxpayer. For that reason, TAS will not accept new cases solely involving the processing of an individual or business amended return. TAS will continue to monitor IRS developments in amended return processing and will reevaluate this determination as the situation changes.”
The TAO is still going to continue helping taxpayers with other issues. Collins said TAO would accept new cases if the main issue meets the case criteria detailed in Section 13.1.7 of the Internal Revenue Manual. The group, however, will mainly allocate its resources for now toward closing its current inventory of cases. TAO also plans to keep advocating for taxpayers at the IRS for changes to clear the unprocessed returns.
“On Nov. 9, 2021, I issued a Taxpayer Advocate Directive directing the IRS to complete processing all backlogged amended tax returns by Dec. 29, 2021, or provide a detailed plan for completing processing the backlog,” said Collins. “My TAD also directed the IRS to provide weekly updates to TAS on the progress in processing these returns and to post weekly updates on IRS.gov.”
Her office noted that taxpayers who are looking for the status of their amended tax returns can use the Where’s My Amended Return tool on IRS.gov. The IRS has also created a web page that includes updated information about IRS operations and backlogs.
“I appreciate your patience and understanding as we work through these unprecedented circumstances,” Collins wrote. “This is not a situation in which the IRS is unwilling to work with taxpayers or TAS. Rather, it has been caused by reduced staffing and the pandemic, which have created extraordinary challenges the IRS must overcome. We are aware of the problems taxpayers are experiencing, and we are continuing to advocate within the IRS to resolve them as quickly as possible.”
Unfortunately for taxpayers and tax professionals, the TAO can only make recommendations to the IRS. It has no power or authority to demand or implement changes. Thus, Ms. Collins’ blog post merely defines where the problem lies, but does not solve the problem.
Tax Tip #1
These are unprecedented times that require taxpayers to be patient. Be sure to keep copy of all of your IRS correspondence and your telephone inquiries. When calling the IRS, be sure to get the name and ID number of the person who assisted you. Contact your state and federal congressional representatives and ask them to address the problems with the IRS.
Tax Tip #2
If you have been using the IRS as a bank to hold your over payment, this practice needs to stop because all significant over payments will be scrutinized by the IRS for ID theft which will delay the issuance of those refunds. Unlike a bank where you can withdraw your money upon demand, the IRS has sole discretion when it releases your over payment.
If you would like to discuss your business or personal tax planning, tax preparation and other financial If you have been using the IRS has a bank to hold your overpayment,concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.
About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.