One of the more infuriating dilemmas for taxpayers is when their federal income tax refund is delayed. Some taxpayers direct their frustration at their accountant or tax preparer. But the fact is, the problem is usually in the lap of the Internal Revenue Service.
No one is more critical of such delays than Erin M. Collins, the IRS’ own National Taxpayer Advocate, the “voice of the taxpayer” within the IRS and before Congress.
In her Annual Report to Congress 2021, Ms. Collins identified the IRS’ processing and refund delays as the No. 1 most serious problem encountered by taxpayers.
As of mid-December 2021, she reported, the IRS had:
- 6.2 million unprocessed individual returns (Form 1040);
- 2.8 million unprocessed business returns (Form 941);
- 2.4 million unprocessed amended individual returns (Form 1040-X);
- 427,000 unprocessed amended business returns (Form 941-X); and
- Approximately 4.75 million pieces of general taxpayer correspondence.
“While much of the processing delay is related to tax year 2020 paper returns, some taxpayers are still waiting for resolution of their electronically filed 2020 tax returns, amended returns, and correspondence replying to IRS notices,”Ms. Collings – Reported
Nearly a year later, “They have still not processed all the 2020 returns,” Henderson CPA Rob Mitchell said. “There are people out there who need that money.”
“It’s terrible,” he said. “We’re getting ready to go into another filing season and they haven’t cleaned up 2020.”
Taxpayers filing paper returns are the most likely to encounter delays. “Paper remains a serious problem and is its Achilles heel,” Ms. Collins said of the IRS.
In a shocking disclosure, the Treasury Inspector General for Tax Administration in May 2022 released a report in which it revealed that “the IRS’ continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021.”
The Treasury Inspector General advocates for more taxpayers to e-File, especially businesses, which are more likely than individuals to file paper returns. Processing paper-filed tax and information returns cost the IRS more than $226 million in fiscal year 2020, it reported.
Further, “E-filing provides benefits to taxpayers, including upfront validations, greater tax return accuracy and secure and confidential submission of highly personal tax return information.”
“Finally, repeated efforts to modernize paper tax return processing have been unsuccessful,” it said.
Yet another frustration for taxpayers and tax preparers alike is long delays getting an answer over the phone with an IRS representative.
“The average hold time to talk to an agent is two hours,” Mitchell said. “If you’re on hold too long, they’ll automatically disconnect you. It’s insane.”
Long wait times combined with the possibility of errors by the IRS can create huge headaches. “We had a client who is a freelance writer,” Mitchell said. “They wrote an article for The Wall Street Journal and got paid $1,000. Someone at the IRS keyed that in as $100,000.” Unraveling that with the IRS took a year and a half.
The lack of manpower is the issue. The National Taxpayer Advocate declared the lack of sufficient and highly trained employees as the IRS’s No. 2 most serious problem. She noted that the IRS budget was reduced about 20 percent in inflation-adjusted dollars from 2010 to 2021, corresponding with the loss of more than 33,000 full-time personnel.
The Inflation Reduction Act of 2022, which was passed by Congress and signed by President Joe Biden on Aug. 16, 2022, provides (among many other things) $80 billion for a large modernization initiative at the IRS, including hiring more employees.
In late October 2022, the IRS reported it had hired and begun training 4,000 new customer service representatives (CSRs) to help answer phones and provide other services. Its goal was to increase that to 5,000 by the end of 2022.
However, in a post on her blog on Nov. 10, 2022, the National Taxpayer Advocate cautioned that “the IRS will soon pull many seasoned CSRs offline before the beginning of the next filing season to provide training for new hires and updates for existing CSRs and, albeit short-term, that will further strain limited resources.”
The IRS’ lack of manpower makes it more valuable for a taxpayer to hire an experienced CPA firm with tax return preparation and representation during an audit.
“The IRS was running three years behind” in conducting audits, Mitchell said. “There is a three-year statute of limitations. We had an auditor ask if we would file a waiver of the statute of limitations” — essentially, giving the IRS auditor extra time to comb through the clients’ returns and records.
“An ordinary taxpayer might not know he doesn’t have to allow or grant the waiver of the statute of limitations,” he said.
But a professional does.
For assistance with your taxes, contact Mitchell & Associates, PLLC at 270-827-5828.