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Setting Expectations: The Current Status of IRS

December 14, 2021

After seeing the effects of the Covid-19 pandemic on the IRS, I think it's a good time to honestly assess what you should expect from IRS in 2022. I'm not trying to single out the Service for criticism. Just about every business and organization I know has staffing shortages and work backlogs. That's the reality of today's world, so we need to be real about it.

In an early November blog post, the Taxpayer Advocate office presented some sobering statistics. As of the end of October, the IRS had 2.7 million unprocessed amended tax returns. Yes, a backlog of 2.7 million. And notice that this is not even total tax returns...this statistic is only counting amended returns submitted by taxpayers. If you have seen slower-than-usual response time from IRS this past 18 months, you are far from alone! We have clients still waiting for 2020 refunds after 10 months, letters to IRS we've written for clients that have yet to be acknowledged, and unresolved issues that have been made more complicated by the lag time in communication.

And...we're about two months away from the beginning of a new tax filing season! The backlog is not going to magically disappear before the season starts.

Why is this happening? First off, well, obviously Covid is the main culprit. IRS was forced to physically shut in-person work sites just like everyone else. Meanwhile, the tax returns kept coming in and piled up. But there's a second factor which is an indirect result of Covid. In 2020, IRS was charged with sending out the Economic Impact Payments - the stimulus money. In fact, this was set as a high priority. IRS had to redirect its efforts to an entirely new task. And redirect is the correct word, because IRS was not able to address the stimulus payments by hiring new staff. Then in 2021, the Advance Child Tax Credit payments began. At least this time IRS had some experience with stimulus payments, but it was still the same story: existing IRS staff were required to set aside their typical job duties to perform an entirely new organizational function. And then, just to pile on, Congress in 2020 and 2021 passed numerous significant changes to tax law in response to Covid. Given all that, of course the delays and backlog increased! If it sounds like I am expressing sympathy for the people of the big, bad, IRS...well, yes, I guess I am!

As a preparer, I've encountered situations where I simply can't give good counsel to clients relating to these delays. "I received a letter from IRS saying they never received my tax return...did they lose it?" Good question...and it's going to probably take a couple months to find out whether that is true, or whether the tax return is just in a queue of papers in a warehouse somewhere. "Why did IRS adjust my total tax due? This letter from them doesn't show how they recalculated the tax." Another good question...and it's going to take a few months to hear back. "Isn't there anyone I can contact to speed up the process?" Don't I wish...the Taxpayer Advocate service is normally exactly where I'd refer you, but they are so overwhelmed they are currently limiting some of the types of cases they are even taking!

One suggestion you can try to get information from IRS: consider setting up an online account with IRS. Click here to read more about the process. I think we'll continue to see more and more self-service options added to the IRS online portal. Note that even if you are married and file jointly, both you and your spouse must set up your own individual accounts.

Again, I'm not trying to stoke your anger with this update. This is simply the reality of the situation. Because of its IRS's role, its problems are prominent, but we're seeing the same problems with shipping companies, trucking companies, the construction industry, and at least half the mom-and-pop stores we frequent. I do want to assure you that over the past six months, I have seen signs that IRS is chipping away at its backlog and I am optimistic that they will catch up. But it will take time.

And for that reason I think you should continue to expect delays well into 2022. The best possible thing you can do is make sure you take all the proactive steps you can to reduce the chance of getting into a situation where you even need to communicate back and forth with IRS. Our office will do our best to help you with that. When possible, we'll recommend the best available communication channels with the IRS. Beyond that, I encourage your patience. Venting frustration will speed up your heart rate, but it won't speed up that IRS response.

Update 1/14/2022: This week I attended a webinar whose speakers included the IRS Commissioner, Chuck Rettig, and the National Taxpayer Advocate, Erin Collins. Based on their comments, unfortunately, I am lowering my optimism for 2022! The backlog and delays are improved from 12 months ago, but there is still a long way to go. I think we should expect exactly the same level of slowed response as we experienced in 2021.

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