This comes as no surprise to taxpayers and tax professionals. Now the IRS’s Internal Watchdog has issued a warning. It likely is going to get worse!
Who Is the IRS Watchdog?
The Taxpayer Advocate Service (TAS) serves as the watchdog over the IRS. It is also known as the Taxpayer Advocate Office (TAO). It is an independent organization within the IRS and it serves as your voice at the IRS. TAS helps those taxpayers whose problems cannot be resolved at the normal administrative channels at the IRS, and those problems are causing a financial difficulty for the taxpayer.
Note: The problems are so bad at the IRS that TAS announced on November 10 that it stopped accepting new cases.
What Is the Crisis?
Per Erin Collins, head of the National Office of the TAS, in her annual report to Congress, stated that the IRS is in “crisis”. Keep in mind that IRS announced in its News Release IR-2022-08 that it will begin began accepting e-filed returns on January 24. While not every one of the close to 143 million U.S. taxpayers will be filing their returns in January or February, millions will file. So what is the crisis?
Ms. Collins reported to Congress that the IRS, due to staffing shortages and backlogs, has a crisis because it is still processing tax year 2020 returns. We are not talking about a few thousand unprocessed returns, but rather at least 11.6 million returns which is far in excess of its annual average of 1 million unprocessed returns going into the next filing season.
IRS Commissioner Charles Rettig acknowledged that the IRS is still processing some 2020 returns. He stated that all paper and e-filed returns with refunds owed that were received before April 2021 have been processed if they did not contain any errors or require further review; however, as of Dec. 23, 2021, there were still some 6 million unprocessed individual returns. And the Service has struggled to answer a record number of taxpayer and preparer phone calls, Rettig said.
However in our opinion, the crisis far extends beyond unprocessed tax returns. Other unacceptable conditions at the IRS include:
- Mail sent to the IRS lying unopened for months – mail that includes tax returns, checks, and responses to IRS notices;
- Taxpayer records not being maintained to reflect current transactions and correspondence;
- 90-day letters demanding payment from taxpayers even though the IRS had cashed the checks;
- Automated compliance action letters being erroneously sent to taxpayers in total disregard of the mess at the IRS. These incorrect tax notices and letters generate written responses and phone calls from taxpayers explaining that their returns were filed properly and payments were made;
- The time that it will take the IRS to respond to these millions of letters from taxpayers notifying the IRS that its records are not correct will undoubtedly seriously increase the announced IRS paper backlog; and
- The IRS finished the 2021 filing season with a backlog of 35.3 million returns that required manual processing.
Salient Observations Made by Erin Collins – Director TAS
The agency is also dealing with a surge in phone calls. In FY 2021, the IRS received about 282 million telephone calls. Customer service representatives only answered about 32 million, or 11 percent, of those calls.
During last year’s filing season (Jan. 1 through May 17), just 7% of taxpayers reached an agent. The IRS received more than 145 million calls from Jan. 1 through May 17, or more than four times its normal call volume.
The agency’s workforce has shrunk 17% since 2010, while the number of individual returns increased 19% in that same time frame. There simply are not enough agents to answer the phones, process tax returns, and resolve issues as per taxpayer correspondence.
During 2021, tens of millions of taxpayers were forced to wait extraordinarily long periods of time for the IRS to process their tax returns, issue their refunds, and address their correspondence.
In addition to the normal annual tax filings, the IRS has a backlog of another 2.3 million of unprocessed amended personal income tax returns (Form 1040X) primarily related to last minute tax law changes and incentive payments.
In addition to the backlog of individual income tax returns, the IRS reported significant delays in processing Forms 941, Employer’s Quarterly Federal Tax Return, and Forms 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. As of December 15, the IRS reported it had 2.8 million unprocessed Forms 941 and about 427,000 Forms 941-X in its backlog.
Paper is the IRS’ kryptonite, and the agency is still buried in it.
The coronavirus pandemic “did not create new challenges for the IRS as much as it highlighted longstanding challenges and areas that require attention”.
Commissioner Rettig’s Response
“In many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs. This is frustrating for taxpayers, for IRS employees, and for me. IRS employees want to do more, and we will continue in 2022 to do everything possible with the resources available to us.”
You be the judge if his response was satisfactory.
Tax Tip #1
File early, if for no other reason, to reduce the likelihood that you will be a victim of ID theft. In addition, filing early will hopefully get in front of the IRS processing line for returns received by the IRS.
Tax Tip #2
While many taxpayers have taken advantage of e-filing, many of those taxpayers continue to remit any balance due by paper check. If the IRS loses your check or is slow in processing it, your account may show a balance due and you will not have proof of payment. The IRS offers many options to remit payment electronically. Taking advantage of these electronic payment options, will provide you with an immediate written confirmation from the IRS that it received your payment stating the amount of the payment and the date processed.
Tax Tip #3
Try and be patient! In addition to the normal annual tax filings, last year there were millions of amended tax returns filed which the IRS is reviewing and which will further delay processing of 2021 tax returns due to the manpower shortage.
Tax Tip #4
Document, document and document and be diligent. Far too many taxpayers claimed that they had not received their stimulus payment only to discover that they had. Paradigm shift needed. Whereas many taxpayers have become accustomed to the IRS sending payment by check, now the IRS is also making direct deposits. Before stating that your refund or stimulus check was not received, first review your bank statements for deposits from the U.S. Treasury.
Tax Tip #5
Congress helped create this crisis at the IRS by not adequately funding it, limiting the IRS’s ability to hire experienced tax professionals, enacting numerous last minute tax laws that strained IRS resources, and having the IRS be responsible for processing unemployment benefits and child care advance credits without any additional resources.
If you have a tax problem, the IRS is not answering your call or dropping your call because you have been on hold too long, your correspondence to the IRS goes unanswered and threatening notices continue to be received despite your best efforts, and the TAS is not taking on new cases, CALL YOUR LOCAL CONGRESSIONAL REPRESENTATIVE(S) and ask to speak with the constituents services manager (or casework manager).
If you would like to discuss your business or personal tax planning, tax preparation and other financial 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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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.