After coming under pressure from an array of tax and accounting professional associations and hundreds of members of Congress, the Internal Revenue Service said Thursday it would suspend issuance of some of its automated penalty notices to taxpayers, but tax and accounting groups say the agency isn’t providing enough relief.
The IRS has been dealing with millions of unprocessed tax returns from last year as it kicked off tax season this week, as well as mountains of unprocessed correspondence that arrives in the mail every day. Nevertheless, its computer systems have been continuing to churn out automated notices to taxpayers warning them of penalties if they don’t pay taxes they may have already sent in through the mail.
Earlier this month, a coalition of accounting and tax organizations asked the IRS for relief for taxpayers from the automated notices and tax penalties in the midst of the pandemic (
They include the American Institute of CPAs (AICPA), Latino Tax Pros, National Association of Black Accountants, Inc. (NABA), National Association of Enrolled Agents (NAEA), National Association of Tax Professionals (NATP), National Conference of CPA Practitioners (NCCPAP), National Society of Accountants (NSA), National Society of Black Certified Public Accountants, Inc. (NSBCPA), National Society of Tax Professionals (NSTP), Padgett Business Services, the Diverse Organization of Firms (DOF), H&R Block and Prosperity Now. On Wednesday, hundreds of lawmakers in Congress from both parties also wrote to the IRS demanding tax relief for their constituents (
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The IRS pointed out it has been working on delivering relief for taxpayers and tax professionals throughout the pandemic, even though it lacks the funding and has limited resources, forcing many of its employees to work overtime and transfer work across departments.
“As part of this ongoing effort and balancing the importance of protecting the interests of tax administration, the IRS has also been taking important steps to modify our operations and provide additional taxpayer relief,” said the IRS in its statement. “These efforts include suspending issuance of certain automated notices and related actions. We are looking at the suggestions that have come in, and we will continue to modify and adjust our efforts going forward to help taxpayers and the tax community.”
The IRS noted that it has already decided to suspend notices in situations where it has credited taxpayers for payments but has no record of the tax return actually being filed. “In many situations, the tax return may be part of our current paper tax inventory and simply hasn't been processed,” said the IRS. “Stopping these letters — which could have otherwise been sent to thousands of taxpayers — will help avoid confusion.”
The IRS pointed out, however, that many of its notices are required by law to be issued within a certain time frame in order to be legally valid, and it’s up to Congress to change that. “This means they must be sent, absent congressional action,” said the IRS. “We will continue to explore areas where the IRS can make changes and are in the process of reviewing the full set of notices that we send to determine where we can make adjustments while we continue to work through unprocessed returns and taxpayer correspondence.”
The IRS will probably need to modify the programming of some of its computer systems to stop the automated notices from going out to taxpayers, and that, in turn, could lead to bottlenecks on processing returns during tax season.
“Making significant operational changes to our systems, including stopping certain notices from being printed and mailed, may require programming and other operational changes,” said the IRS. “With an outdated technological ecosystem, these are changes that cannot be made as efficiently as they should be — and that is part of the reason why investing in IRS IT modernization is so important. While we will make every effort to find improvements to help taxpayers, we will have to do so in the constraints of an outdated system, where a seemingly simple modification could run the risk of jeopardizing the overall operating system critical to the current tax season — and the more than 160 million returns we anticipate receiving.”
IRS Commissioner Chuck Rettig also weighed in on the matter. "Since last year, we have been focused on numerous taxpayer-related issues and have pursued innovative ideas and processes not previously deployed by the IRS in an effort to get healthy and provide meaningful taxpayer services,” Rettig said in a statement. "Our employees have worked hard, long hours during the pandemic to assist taxpayers and successfully modify our systems, despite lacking the funding that we need to adequately serve the American people. We appreciate the patience and understanding of everyone and the many expressions of appreciation for the efforts of our employees, who have continued to step forward while sharing the same health and safety concerns of others. We are continuing to balance multiple unprecedented demands, including starting the filing season as well as continuing to work on important new tax provisions. The IRS has been operating in an 'all hands on deck' approach, leaving nothing off the table for consideration to improve overall service. We will rapidly adapt to changing circumstances, when appropriate to do so."
The IRS said it is continuing to assess other changes and system modifications it may be able to implement to help taxpayers on an array of other issues and will continue to make information available to taxpayers throughout the filing season.
The coalition of tax groups wants the IRS to take further action to stop the automated notices.
“We appreciate that the IRS has halted ‘automated notices in cases where a payment has been credited to a taxpayer, but no return has been processed,’” said the coalition. “This is a good first step in offering relief to taxpayers. However, in our experience, the majority of erroneous notices are a result of numerous other circumstances where taxpayers are crying out for help, especially the underserved and minority communities. The IRS should temporarily suspend all automated compliance actions as they did with the onset of the COVID pandemic. Furthermore, we believe that if all the recommendations made by this coalition are implemented, it will go a long way to help taxpayers, tax practitioners and the IRS better navigate through this difficult tax season. Simply put, more is needed to offer meaningful relief to individuals and small businesses, and we urge the IRS to implement all of our recommendations.”
The coalition has been asking the IRS to discontinue automated compliance actions until the IRS is prepared to devote the necessary resources for a timely resolution. The groups also want the IRS to align requests for account holds with the time it takes the IRS to process any penalty abatement requests. They also have asked the IRS to offer a reasonable cause penalty waiver, similar to the procedures of a first-time abate administrative waiver. In addition, they are asking the IRS to provide taxpayers with targeted relief from the underpayment and the late payment penalty for the 2020 and 2021 tax year.
“The actions taken today by the IRS signals their desire to help taxpayers, but we believe that there is more they can do and respectfully disagree with the IRS’s assertion that congressional action is needed to suspend the automatic issuance of notices,” said AICPA president and CEO Barry Melancon in a statement. “All of the recommendations put forth by the AICPA and the coalition are actions that we believe the IRS can legally take right now to provide immediate relief to taxpayers — but we would welcome more details from the commissioner on what he believes the IRS can do and what might require congressional action. Congress has demonstrated that it is more than ready to advocate for taxpayers and practitioners, and we are confident that lawmakers would act swiftly to assist. We appreciate the strain the IRS is under and continue to urge them to fully implement all of our recommendations to alleviate unnecessary stress on the agency and the taxpayers.”
