How COVID-19 And Underfunding Impacts IRS Operations And Causes Refund Delays For Taxpayers.

As required by law, once a year the Taxpayer Advocate’s Office (an independent Federal government department that monitors the Internal Revenue Service) must send a report to Congress describing challenges the IRS is facing, problems experienced by taxpayers in dealing with the IRS and recommendations to resolve these problems.

On January 12, 2022, National Taxpayer Advocate Chief Erin M. Collins released her 2021 Annual Report to Congress focusing on the unprecedented challenges taxpayers faced in filing their tax returns and receiving refunds and stimulus payments during a year consumed by the COVID-19 pandemic. Specifically noting that tens of millions of taxpayers experienced delays in the processing of their returns and with 77% of individual taxpayers receiving refunds “processing delays translated directly into refund delays”. The report also finds that the underfunding of the IRS over the last decade has resulted in the IRS still using antiquated technology and inadequate staffing levels to meet taxpayers’ needs.

Advocate Chief Collins also released the 2022 edition of the National Taxpayer Advocate’s “Purple Book” which presents 68 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.

Impact of COVID-19 on tax administration

Advocate Chief Collins cited in her report that: “There is no way to sugarcoat the year 2021 in tax administration. The year 2021 provided no shortage of taxpayer problems. While my report focuses primarily on the problems of 2021, I am deeply concerned about the upcoming filing season”.

• Unprocessed Returns: As of late December 2021, the IRS indicated there were still 6 million unprocessed individual returns and 2.3 million unprocessed business returns, more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence – with some of these submissions dating back at least to April 2021 and many taxpayers still waiting for their refunds nine months later.
• Missing Or Inaccurate Economic Impact Payments (“EIP”) and Recovery Rebate Credits (“RRC”): The most common discrepancy involved RRC claims by taxpayers who did not receive some or all of their stimulus payments as EIPs the prior year. These returns had to be manually reviewed, and the IRS issued more than 11 million math error notices to taxpayers over RRC discrepancies with IRS records. When a taxpayer disagreed with a math error notice and submitted a response, the taxpayer’s response went into the IRS’s paper processing backlog, further delaying the refund.
• Delayed Responses: The IRS received 6.2 million taxpayer responses to proposed adjustments and took an average of 199 days to process them – up from 74 days in the 2019 fiscal year, the most recent pre-pandemic year.

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because the IRS is under challenges from COVID-19 or from underfunding.  Instead you should be utilizing this valuable time to get yourself prepared so that when IRS is resuming action against you, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance.  That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.  Also, if you are required to make estimated tax payments, you must be current in making those payments.  Fortunately, as we are now in 2022, taxpayers who expect to owe for 2021 should have their 2021 income tax returns done now so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2022.

Remember that COVID-19 does not terminate the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Metropolitan Los Angeles (Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.