The Inside Income Service is coming beneath growing strain from Congress and tax professionals to deal with the backlog of unprocessed tax returns from final yr and to stem the tide of automated assortment notices from its pc programs which were flooding taxpayers who already filed their returns.
IRS Commissioner Charles Rettig despatched an replace Monday to members of Congress on the present submitting season and its challenges. “The mixture of the pandemic, new tax legal guidelines and quite a few different elements led to an unprecedented quantity of unprocessed tax returns and correspondence remaining within the IRS stock throughout 2021,” he wrote. “The IRS pursued important actions in the course of the 2021 submitting season to deal with the return and correspondence stock. However, as a result of the IRS lacked the assets it wanted to scale back stock to a wholesome stage, we’re coming into the submitting season with a major stock of unprocessed returns and correspondence. We should proceed pursuing revolutionary methods whereas supporting the onerous work and dedication of our workers to meet our dedication to return inventories to a wholesome stage earlier than coming into the 2023 submitting season.”
This yr the IRS is establishing so-called “surge groups,” quickly transferring roughly 1,200 workers with earlier expertise again into key areas from different components of the company. The company has additionally applied obligatory extra time for the primary time in sure features, Rettig famous.
IRS Commissioner Charles Rettig
Andrew Harrer/Bloomberg
The IRS is engaged on processing new tax returns whereas additionally coping with amended tax returns, which have been contributing closely to the bottleneck.
“New instruments are serving to IRS workers assessment and course of tax returns that embody errors and handbook opinions, a bit that can assist taxpayers obtain refunds faster in 2022,” he wrote. “These efforts have already demonstrated optimistic outcomes. These steps are making a distinction. Refunds for tax returns and amended tax returns within the stock proceed to circulate out to taxpayers. On the identical time, the IRS efficiently opened the 2022 tax season two weeks sooner than the yr earlier than, clearing the best way for 160 million tax returns to be processed in a well timed method. We’re working onerous to satisfy taxpayers’ persevering with wants and supply reduction or help at any time when acceptable.”
The IRS has been making an attempt to scale back the variety of automated assortment notices which can be despatched out, notably for tax returns which were obtained and never totally processed. It’s additionally contemplating methods to alleviate automated penalty notices.
“We’re suspending automated assortment notices usually issued when a taxpayer owes extra tax or has no report of submitting a tax return,” mentioned Rettig. “Notice that many different IRS notices are statutorily required to be issued inside a sure timeframe to be legally legitimate. In some conditions, it might sound that we must always modify a portion of a system to supply taxpayer reduction. Sadly, as a result of we now have not had the assets to spend money on extra trendy expertise that enables us to include the results of 1 change on the broader technological ecosystem, it should be acknowledged that we will not be in a position to take action with out jeopardizing the general working system.”
The IRS can be trying into methods to alleviate the penalties taxpayers are going through, however there too it faces obstacles.
“We’re evaluating penalty reduction choices; nonetheless, we should additionally decide if systemic programming adjustments or handbook intervention are required for the thought of reduction,” Rettig wrote to lawmakers. “Guide intervention would require re-direction of assets from processing unique returns and amended tax returns.”
Making use of strain
A coalition of tax skilled teams, together with the American Institute of CPAs, the Nationwide Affiliation of Tax Professionals, and the Nationwide Affiliation of Enrolled Brokers, has been urging the IRS to do extra to halt the automated assortment and penalty notices. Whereas the IRS introduced some reduction final month, the teams don’t imagine it goes far sufficient (see story). They held an internet assembly Tuesday to debate the persevering with issues.
“The IRS has began to take some motion on this space, and we do respect that,” mentioned Thad Inge, legislative counsel for the NAEA. “Nevertheless, to date the coalition has not gotten any affirmation of notices being suspended past the CP80s. These are the automated notices in circumstances the place a fee has been credited to a taxpayer, however no tax return has been processed. So we respect the motion they took there, however in lots of circumstances the larger difficulty is when the IRS has the return however hasn’t utilized the fee onto the taxpayer’s account, so we’re anxious to get particulars on whether or not the IRS goes to take extra motion, whether or not there will probably be extra automated notices that will probably be suspended. I wish to emphasize that we’re not asking for the IRS to cease all collections. We all know that’s not reasonable. However we’re asking them to show off these automated collections. … They can droop these. The IRS commissioner has the authority. He exercised it throughout COVID. They’ve performed this earlier than.”
The coalition of tax professional teams wish to see the IRS alleviate the continuing drawback of automated assortment notices being despatched, and for penalty abatements to be supplied. “This coalition has come collectively to attempt to supply some short-term options, as a result of whereas long-term options have been introduced, we’d like a bridge from the place we’re at this time to get to these long-term options,” mentioned Roger Harris, president and COO of Padgett Enterprise Providers. “We imagine that the coalition’s ideas are truthful and affordable. We all know they’ll assist taxpayers, however they’ll additionally assist practitioners in addition to the IRS.”
Teams just like the Nationwide Affiliation of Black Accountants and Latino Tax Professional are additionally a part of the coalition, in addition to neighborhood advocacy teams. “For the reason that onset of the pandemic, the IRS backlog has grown considerably,” mentioned Rebecca Thompson, vp of strategic partnerships and community constructing on the advocacy group Prosperity Now. “As we slowly return to the illusion of normalcy, the IRS backlog and the disconnect between paper processing and automatic programs has been exacerbated, leading to premature and inaccurate assortment notices being erroneously despatched to taxpayers. This may be particularly devastating for low-income taxpayers, notably those that have been hit onerous by the pandemic.”
One difficulty could also be how the IRS can reprogram its automated programs to show off the automated notices with out inflicting different bottlenecks throughout tax season. “Most taxpayers don’t understand they’re automated,” mentioned Nina Tross, govt director of the Nationwide Society of Tax Professionals. “Once they don’t make sense, or after they’re not correct or they’re not full, and issues are usually not performed on a well timed foundation, there actually is nobody on the service who’s conscious of that. All of the system is doing is producing these notices on a preset schedule that has been decided by the software program.”
Nationwide Taxpayer Advocate Erin Collins testified earlier than the Home Methods and Means Oversight Subcommittee on Tuesday concerning the issues she is seeing this tax season. “In the course of the previous 18 months, the stock backlog has continued to snowball,” she mentioned. “We have to put the processing backlog behind us. We have to get the IRS out of the opening it at present finds itself in and get the IRS to a steady and wholesome situation so it may carry out its core mission.”
The company is struggling to meet up with the backlog of tens of millions of paper returns it’s going through from final yr. “The IRS nonetheless has round three million returns that should be scanned, transcribed and processed,” mentioned Collins. “When the IRS requires extra data and proposes an adjustment, it sends the taxpayer a written discover. Taxpayers reply in writing, inflicting extra delays. All of those delays contribute to the taxpayer’s frustration and confusion.”
Home Methods and Means Oversight Subcommittee Chairman Invoice Pascrell, D-New Jersey, mentioned he has heard concerning the issues with the automated notices. “I additionally know that taxpayers are confused by the automated notices they’re receiving for returns already filed and taxes already paid,” he mentioned in his opening assertion. “The backlog of returns and correspondence is delaying refunds and inflicting quite a few points for each people and companies.”
Collins prompt some methods to cope with the automated notices. “Droop all automated assortment notices till the IRS will get present in processing unique and amended tax returns and taxpayer correspondence,” she wrote in her ready testimony to the subcommittee, echoing suggestions from the coalition of tax professional teams. “Untimely lien and levy notices have been issued to taxpayers in circumstances the place tax returns or correspondence that present the taxpayers do not need liabilities haven’t but been processed. That ought to not occur. The IRS has begun to droop some notices to scale back confusion and frustration for taxpayers nonetheless ready for his or her return or correspondence to be processed. This motion has the additional advantage of releasing up workers who ordinarily course of taxpayer responses to help with return processing.”