“The IRS entered this historic pandemic without the funding that it needs to serve the American people.” This clear statement from IRS Commissioner Charles Rettig was made after the AICPA and other accounting organizations sent a strongly-worded letter to IRS and Treasury (with copies to Congress) all but demanding that the IRS immediately grant penalty relief and suspend other compliance measures until the IRS solves its many problems. Rettig was appointed by President Trump in 2018. IRS Commissioners serve five-year terms and typically continue to serve when a new Administration takes over.
The Problem in Numbers
The National Taxpayer Advocate (NTA) reported in January that the IRS has a backlog of 6 million unprocessed original 1040 returns; 2.3 million amended returns; over a million Forms 941, Employer’s Quarterly Federal Tax Return; and 5 million pieces of unanswered taxpayer correspondence. The problems result both from chronic underfunding and pandemic closures of IRS facilities. The NTA notes that, since the fiscal year 2010, the IRS’s workforce has shrunk by 17% while its workload – as measured by the number of individual return filings – has increased by 19%.
AICPA Coalition Recommendations
Processing problems are leading the IRS to send numerous mistargeted notices, liens and levies, according to the AICPA coalition. The group also noted that the IRS is only answering 9 percent of all calls and only 3 percent of calls regarding individual income tax returns, which prevents taxpayers and their representatives from resolving straightforward issues. The coalition recommends that the IRS take the following actions:
- Discontinue automated compliance actions until the IRS is prepared to devote the resources for a proper and timely resolution of the matter.
- Align requests for account holds with the time it takes the IRS to process any penalty abatement requests.
- Offer a reasonable cause penalty waiver, similar to the procedures of the first-time abatement administrative waiver, without affecting the taxpayer’s eligibility for future abatements.
- Provide taxpayers with targeted relief from both the underpayment of the estimated tax penalty and the late payment penalty for the 2020 and 2021 tax years.
IRS to Reassign 1,200 Employees
The IRS announced measures to address some of its problems as the 2022 filing season gets underway. In an internal memo to employees, Commissioner Rettig announced that he is shifting 1,200 employees to account management as an “inventory surge team” through the end of September. Just days later, the IRS said it will suspend sending out 10 notices and letters to taxpayers, including the mailing of automated collection notices normally issued when a taxpayer owes additional tax and the IRS has no record of a taxpayer filing a tax return. A complete list of the suspended notices appears below. The notices have been temporarily stopped until the backlog is worked through. Taxpayers still may receive some of these notices that are already in the communications pipeline.
The AICPA responded stating that the IRS’s plan to shift personnel to service centers represents “positive steps in the right direction” but is no substitute for the more far-reaching measures requested. With regard to the notice suspension, the AICPA commented, “Taxpayers, practitioners, and IRS will benefit from reducing unnecessary contact, such as erroneous notices or warnings of levy, and provide much-needed relief during an already stressful and overwhelming tax season.”
What This Means for Taxpayers
Not only does the IRS have problems with past filings, but the 2022 tax filing season is predicted to be hellish. Expect processing delays, IRS miscommunications, and IRS radio silence when taxpayers and their representatives try to communicate with the IRS to resolve problems. However, there are important measures taxpayers can take to protect themselves from unwarranted IRS actions, including:
- Contact your tax advisor when you receive any communication from the IRS. Even if it is one of the suspended notices, it is important that your advisor knows you received a notice or letter.
- Keep detailed records of any correspondence sent to the IRS and use certified mail, return receipt requested or some other tracked delivery service.
- Keep detailed records of any direct communication with the IRS by telephone–date, time, name or employee number of IRS employee and what was discussed.
- Keep detailed bank records for any automatic withdrawals from your accounts by the IRS. Watch for and make note of any deposits sent to your accounts by the IRS/Treasury Department.
- Be patient. Know that your tax advisor shares your frustrations in dealing with the IRS. Persistence and professionalism pay off.
About the Author
Lucia Nasuti Smeal is a guest blogger on tax topics for Frazier & Deeter. Smeal is an attorney, an adjunct tax professor with Georgia State University’s J. Mack Robinson College of Business and with Franklin University in Ohio, and a former editor of Tax Notes Today, published by Tax Analysts. Smeal also worked as a legislative analyst for the Congressional Research Service and is a former member of the U.S. House Periodical Press Corps. She is a frequent speaker and writer on current tax developments.