IRS LOGJAM … REMAINS JAMMED!

IRS LOGJAM … REMAINS JAMMED!
Taxpayers’ Frustrations Persist

Initially in January and again in March of this year, the Pearson Perspective reported on the backlog at the IRS of unpaid tax refunds to American taxpayers. In the most recent of those articles, IRS Remains “Swamped”, we promised to keep you up to date as changes occur. Here are the latest facts and anticipation for taxpayer relief.

The 8 IRS Demons

In an attempt at fairness … not an excuse … the agency is under tremendous strain with enormous unplanned burdens triggered by three rounds of stimulus checks, plus coping with other pandemic-related changes to the tax code, such as:

1. exemption of the first $10,200 in 2020 unemployment benefits from federal tax;
2. new tax credits for employers;
3. abnormal surge of 2020 individual 1040s requiring manual processing;
4. staffing shortages;
5. challenges of remote work and retraining IRS employees;
6. leftover backlog of yet unprocessed 2019 paper tax returns;
7. established procedures now either scrapped or subject to major revisions;
8. IT overwhelmed to deliver software updates to accommodate compliance revisions.

Given the backlog of 2019 tax filings, there was considerable pressure to extend the 2021 tax filing season as the pandemic continues to impose a “titanic strain on the agency” … as expressed by two ranking House Representatives. Congressional pressure, along with requests filed by the AICPA and National Association of Tax Professionals were instrumental in the IRS extension of the 2021 income tax filing season to May 17.

IRS Status Update

Millions of American taxpayers are clamoring for an answer … “Where’s my refund?” Lack of a definitive answer is further exacerbated by not knowing what’s the delay, when will it be resolved and how to get answers for help from the agency.

Not presented here as excuses, the IRS reported in mid-February that it had yet to process 6.7 million individual income tax returns for 2019. Add to that the 2 million tax returns in the IRS’s pipeline as of the last week of March 2021. Here are taxpayer profiles and their status in the world of IRS processing.

Electronically filed returns: The IRS reports 21 days as the normal turnaround time to process returns and initiate refunds … and claims that some taxpayers enjoy receiving their refunds faster. If you filed electronically, you should be among those who receive their refunds first, according to the IRS. That said, this year many returns are taking much longer.

Error Resolution System processing: An abnormally high number of 2020 individual 1040s require special manual processing through the IRS’ so-called Error Resolution System (ERS). Another surprise was prompted by Congress’ decision to allow taxpayers to use their 2019 income … rather than that calculated for 2020 … to claim the Earned Income Tax Credit or Additional Child Tax Credit for 2020.

Additional Taxpayer Information Needed: Currently, the IRS has about 29 million returns to process manually. Clearly, if a taxpayer’s return is tagged to be processed manually there will be delays. What triggers a manual review? Here’s a sampling:

• 8 million awaiting ERS processing;
• 5.3 million paper 1040s from 2019 & 2020 filings;
• 4.7 million returns on hold pending taxpayer responses re errors or fraud alerts;
• 11 million business and other types of returns.

Taxpayers Seeking Answers … What to Do … What to Expect?

Short-term Fix: The IRS has addressed the issue of taxpayer checks caught in the backlog of unopened mail. As detailed on the IRS web page … pending check payments and payment notices will be posted as of the date received rather than the date when they are processed by the IRS.

Staff Shortages: The IRS admits to being short on staff, many if not most agents remain furloughed. That creates bottlenecks in opening the mail, plus dealing with the overwhelming volume of phone calls from taxpayers. IRS Commissioner Charles Rettig told the Senate Finance Committee in May that the agency had planned to hire an additional 5,000 customer phone representatives this year … with only 3,800 applications submitted.

Phone Service: Phone calls to the agency can leave the taxpayer on “hold” sometimes for hours. Important clarification requests go unanswered with the taxpayer left without knowing what to do next to remain in compliance. By its own admission, the IRS confesses that:

• account management phone lines have soared to a call rate of 300% over last tax year;
• level of service is just 14% for the 115 million calls received on its account management help lines;
• similarly, just 1 in 50 callers are getting through to a representative for 1040 related help;

Result: “Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending,” said the IRS.

Check the Status of Your Refund: According to the IRS, its Where’s My Refund? tool offers a convenient way to do so. The agency claims you’ll view a personalized refund date after your return is processed and a refund is approved. Before visiting the above link, gather the following information.

• Social Security number or Individual Taxpayer Identification number;
• Tax filing status;
• Exact amount of the refund claimed on your tax return.

Your reward will be knowing when your return was received, refund approval and refund sent. Click here for a brief video description of what to do.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help. Give us a call or drop an email.