The Internal Revenue Service has a brutal backlog of unfinished tax returns from last year, which has triggered more tax-time anxiety than one could imagine for many tax filers.
"Paper is the IRS's Kryptonite, and the agency is still buried in it," wrote National Taxpayer Advocate Erin Collins in her 2021 report to Congress.
She dubbed 2021 "the most challenging year taxpayers and tax professionals have ever experienced."
This tax season looks like it might, quite possibly, beat that record as professionals prepare for continued confusion, unanswered calls at the IRS and more tax refund delays.
“I know it’s a difficult thing when you have clients crying on the phone, saying 'I need this money, I need this money,' ” said Nina Tross, executive director, National Society of Tax Professionals.
“I would recommend that you chill out with your clients, don’t feed the stress level," she said.
Taxpayers, including small business owners, often want to know what has happened to their refund and they can't find easy answers. During the past two years of the pandemic, tax experts said, many even are demanding to know what happened to their last year's return, which the IRS has not processed.
Tross, who spoke during a virtual forum Tuesday for tax professionals and others, advised those who are preparing tax returns to set realistic expectations, try to calm clients down, read IRS notices, and pay attention to updates and alerts from tax groups.
Many times, she noted, taxpayers don't realize that the unexpected letter the IRS just sent them may not be accurate, may not be complete and often the system is generating notices on a pre-set basis that has been determined by the software.
”I’ve had clients calling up saying ‘I’m about to lose my house,’ ” Tross said. They're not about to lose their house, she noted, but she's not sure what generated that level of panic. She asks calmly: What IRS letter did you receive?
Late Wednesday afternoon, the IRS announced that it would temporarily suspend more than a dozen additional automated notices, including balance due notices and unfiled tax return notices. The IRS also is temporarily halting 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.
The IRS will continue to assess its backlog inventory of prior year returns to determine when to resume sending the notices.
But the IRS warned that some taxpayers and tax professionals may still receive these notices during the next few weeks. “Generally, there is no need to call or respond to the notice as the IRS continues to process prior year tax returns as quickly as possible,” the IRS said.
People have good reason to be flustered and upset.
Millions of 2020 tax returns remain unprocessed — and that can create trouble as people attempt to file their 2021 tax returns.
As of late December, the Internal Revenue Service was dealing with 6 million unprocessed original Form 1040 individual returns and 2.3 million unprocessed amended individual returns or Forms 1040-X,
One tip for the 2021 tax season from the IRS, for example, even specifically addresses an issue that can arise from those unprocessed returns.
What should you do, for example, if your 2020 return was filed but you've still not received your refund because the return still hasn't been processed? Should you wait to file 2021 federal income tax return until the 2020 moves through the IRS pipeline?
The IRS said you do not have to wait to have your 2020 return processed before you file the 2021 return. But you must take some extra steps if you want to file electronically, as the IRS recommends.
"For those filing electronically in this group," the IRS stated, "here's a critical point. Taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return when they file electronically. For those waiting on their 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year's AGI on the 2021 tax return. Visit Validating Your Electronically Filed Tax Return for more details."
But the IRS also notes that some need to take a different route: "If you used the Non-Filers tool in 2021 to register for an advance Child Tax Credit payment or third Economic Impact Payment in 2021, enter $1 as your prior year AGI."
Those who received their 2020 income tax refunds, however, can file and use their AGI as they would normally. For example, you'd go to a copy of your 2020 tax return and find your actual adjusted gross income or AGI on line 11 of the Form 1040.
When will the IRS be ready to help taxpayers?
The depth of the frustration this tax season came across loud and clear during a forum held by groups representing certified public accountants, enrolled agents and other tax professionals Tuesday, just about two weeks after the IRS officially began processing 2021 federal income tax returns.
The title of the forum was telling: "Is help on the way from the IRS this filing season?"
Many people realize they can't get a call through to the IRS, but tax professionals acknowledged that they're unable to get a timely response either.
“It’s like calling the cable company. There’s nobody answering the phone," said Rebecca Thompson, vice president of strategic partnerships & network building for Prosperity Now, which has fought to reform the U.S. tax code.
Thompson, who also is a member of the IRS Advisory Council, said low-income taxpayers become particularly upset when they receive a letter from the IRS, especially if it's an automated notice that erroneously involves a tax obligation that has already been paid.
Individual taxpayers can't get answers just by calling the IRS to find out what the notice even means — or work to quickly resolve a mistake.
Tax professionals are not getting through quickly, either.
Tax professionals on this forum call were told to be prepared to wait an hour or two for the IRS to respond to their calls — and have all the documentation ready to go once an IRS employee picks up.
Carlos Lopez, an enrolled agent and founder & CEO of the Latino Tax Professional Association, indicated that the stress of the tax season was already evident in the comments in the chat portion of the forum — and encouraged tax preparers to eat healthy and take walks during the day to relieve stress.
The tax pros noted that the IRS phone system is clogged when people get automated notices and paperwork that shocks them. No business, they maintained, could handle 1,500 calls per second.
IRS Commissioner Charles Rettig stated in written testimony before a Senate subcommittee last year that on March 15, 2021, alone the IRS had received 8.6 million calls or about 1,500 calls per second.
During a more typical filing season, he said, the IRS would average 2 million to 3 million calls each day.
The backlogs led to more paperwork, leading to more phone calls, leading to more frustration, according to tax experts who are dealing with taxpayers regularly.
About 5 million pieces of taxpayer correspondence — with some dating at least to April 2021 and many taxpayers still waiting for their refunds nine months later — remained in the backlog in late December, according to the National Taxpayer Advocate's report.
The Tax Professionals United for Taxpayer Relief Coalition sent a letter in January to the IRS outlining steps that can be taken to ease the problems in the short term. The professionals say they've been trying to get relief for about 18 months as pandemic-related problems got worse for the IRS system.
The coalition is composed of a long list of groups including the American Institute of CPAs, Latino Tax Professional Association, National Association of Black Accountants Inc., the National Association of Enrolled Agents, the National Association of Tax Professionals, H&R Block and Prosperity Now.
The letter pointed out that the pandemic has "created unforeseen and long-lasting difficulties" for the IRS, taxpayers and tax professionals.
No one is under the illusion that the tax season will go smoothly.
As part of the argument for more relief, the letter referred to the unprecedented number of unprocessed returns in comparison to years before the pandemic.
"Consequently, the IRS sends numerous mistargeted notices, liens and levies. Additionally, the IRS is only answering 9% of all calls and only 3% of calls regarding individual income tax returns, which prevents taxpayers from resolving these straightforward issues."
The IRS responds to confusion
Shortly after tax season began, the IRS caused more of an uproar among taxpayers who began receiving notices about 2020 returns that they had sent in long ago.
I heard from one taxpayer after another when I wrote a column in late January about how the IRS mailed letters that asked taxpayers to send in copies of their 2020 income tax returns — the same returns that they filed a year ago.
The letter, called Notice CP80, states: "Send your signed return to the address shown above. We'll assign the credit to the tax you owe and refund any over payment if you owe no other taxes or obligations."
Many of these taxpayers had already seen the IRS cash their checks for the taxes owed last year — so they wondered, why do they need to file a return? They knew they weren't owed any money — and they don't owe any money anymore.
Soon after taxpayers and others voiced their complaints, the IRS announced that it would "suspend notices in situations where we have credited taxpayers for payments but have no record of the tax return being filed."
Tax professionals on that forum call want to see more of these types of automated notices suspended while the IRS deals with its current glut of paperwork.
Many people who already got those letters, of course, still didn't know what to do.
"If a taxpayer has received a notice for a 2020 return they should not refile," according to Luis Garcia, a spokesperson for the IRS in Detroit.
Taxpayers also can establish and log into their tax account online at IRS.gov to view their tax status and any correspondence the IRS has sent, he said.
If you didn't file a 2020 return, obviously, you could have money that you might be owed based on the CP80 notice and would want to file to claim a refund.
The CP80 notice typically can help someone who might have forgotten to file a 2020 return after they faced a troubling event, such as a death or natural disaster. By filing a return later, they could still claim refund money they're owed, said Edward Karl, vice president of tax policy and advocacy for the American Institute of CPAs.
In most cases, an original return claiming a refund must be filed within three years of its due date for the IRS to issue a refund.
Late Wednesday afternoon, the IRS announced that it would temporarily suspend more than a dozen additional automated notices, including balance due notices and unfiled tax return notices. The IRS also is temporarily halting 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.
The IRS will continue to assess its backlog inventory of prior year returns to determine when to resume sending the notices.
But the IRS warned that some taxpayers and tax professionals may still receive these notices during the next few weeks. "Generally, there is no need to call or respond to the notice as the IRS continues to process prior year tax returns as quickly as possible," the IRS said.
The IRS is juggling its staffing
Finally, the IRS said Feb. 3 that it is moving 1,200 existing employees from other positions to deal with the unprecedented pileup. The employees have previous experience as tax examiners, customer service representatives, campus support and other key duties. They will remain on board to work through account management issues through September.
The IRS said it continues to explore multiple options to help taxpayers, including those with tax returns awaiting processing.
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The American Institute of CPAs approved the move by the IRS to suspend the one automated notice and efforts to shift personnel to service centers but maintains more needs to be done.
More:IRS cashed the check but asked these taxpayers to re-send returns
“We are glad that the IRS seems to be listening and responding to the collective frustrations of all taxpayers," AICPA president and CEO Barry Melancon said in a statement.
But tax professionals want the IRS to do more to provide immediate relief, he said, and "move as quickly as possible to offer reasonable measures of relief as we are already in the beginnings of tax busy season."
"Time is of the essence," Melancon said.
The tax deadline this year is April 18. Yes, still two months away. But many tax pros remain on high alert.
ContactSusan Tompor: [email protected]. Follow her on Twitter@tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.
