The Internal Revenue Service is coming under increasing pressure from Congress and tax professionals to address the backlog of unprocessed tax returns from last year and to stem the tide of automated collection notices from its computer systems that have been flooding taxpayers who already filed their returns.
IRS Commissioner Charles Rettig sent an update Monday to members of Congress on the current filing season and its challenges. “The combination of the pandemic, new tax laws and numerous other factors led to an unprecedented amount of unprocessed tax returns and correspondence remaining in the IRS inventory during 2021,” he wrote. “The IRS pursued significant actions during the 2021 filing season to address the return and correspondence inventory. But, because the IRS lacked the resources it needed to reduce inventory to a healthy level, we are entering the filing season with a significant inventory of unprocessed returns and correspondence. We must continue pursuing innovative strategies while supporting the hard work and dedication of our employees to fulfill our commitment to return inventories to a healthy level before entering the 2023 filing season.”
This year the IRS is setting up so-called “surge teams,” temporarily moving approximately 1,200 employees with previous experience back into key areas from other parts of the agency. The agency has also implemented mandatory overtime for the first time in certain functions, Rettig noted.
The IRS is working on processing new tax returns while also dealing with amended tax returns, which have been contributing heavily to the bottleneck.
“New tools are helping IRS employees review and process tax returns that include errors and manual reviews, a piece that will help taxpayers receive refunds quicker in 2022,” he wrote. “These efforts have already demonstrated positive results. These steps are making a difference. Refunds for tax returns and amended tax returns in the inventory continue to flow out to taxpayers. At the same time, the IRS successfully opened the 2022 tax season two weeks earlier than the year before, clearing the way for 160 million tax returns to be processed in a timely manner. We are working hard to meet taxpayers’ continuing needs and provide relief or assistance whenever appropriate.”
The IRS has been trying to reduce the number of automated collection notices that are sent out, particularly for tax returns that have been received and not fully processed. It’s also considering ways to alleviate automatic penalty notices.
“We are suspending automated collection notices normally issued when a taxpayer owes additional tax or has no record of filing a tax return,” said Rettig. “Note that many other IRS notices are statutorily required to be issued within a certain timeframe to be legally valid. In some situations, it might seem that we should modify a portion of a system to provide taxpayer relief. Unfortunately, because we have not had the resources to invest in more modern technology that allows us to contain the effects of one change on the broader technological ecosystem, it must be acknowledged that we may not be able to do so without jeopardizing the overall operating system.”
The IRS is also looking into ways to alleviate the penalties taxpayers are facing, but there too it faces obstacles.
“We are evaluating penalty relief options; however, we must also determine if systemic programming changes or manual intervention are required for the considered relief,” Rettig wrote to lawmakers. “Manual intervention would require re-direction of resources from processing original returns and amended tax returns.”
Applying pressure
A coalition of tax professional groups, including the American Institute of CPAs, the National Association of Tax Professionals, and the National Association of Enrolled Agents, has been urging the IRS to do more to halt the automated collection and penalty notices. While the IRS announced some relief last month, the groups don’t believe it goes far enough (
“The IRS has started to take some action in this area, and we do appreciate that,” said Thad Inge, legislative counsel for the NAEA. “However, so far the coalition has not gotten any confirmation of notices being suspended beyond the CP80s. Those are the automated notices in cases where a payment has been credited to a taxpayer, but no tax return has been processed. So we appreciate the action they took there, but in many cases the bigger issue is when the IRS has the return but hasn’t applied the payment onto the taxpayer’s account, so we’re anxious to get details on whether the IRS is going to take more action, whether there will be additional automatic notices that will be suspended. I want to emphasize that we are not asking for the IRS to stop all collections. We know that’s not realistic. But we’re asking them to turn off these automated collections. ... They are able to suspend these. The IRS commissioner has the authority. He exercised it during COVID. They’ve done this before.”
The coalition of tax pro groups would like to see the IRS alleviate the ongoing problem of automated collection notices being sent, and for penalty abatements to be offered. “This coalition has come together to try to offer some short-term solutions, because while long-term solutions have been presented, we need a bridge from where we are today to get to those long-term solutions,” said Roger Harris, president and COO of Padgett Business Services. “We believe that the coalition’s suggestions are fair and reasonable. We know they’ll help taxpayers, but they’ll also help practitioners as well as the IRS.”
Groups like the National Association of Black Accountants and Latino Tax Pro are also part of the coalition, as well as community advocacy groups. “Since the onset of the pandemic, the IRS backlog has grown significantly,” said Rebecca Thompson, vice president of strategic partnerships and network building at the advocacy group Prosperity Now. “As we slowly return to the semblance of normalcy, the IRS backlog and the disconnect between paper processing and automated systems has been exacerbated, resulting in untimely and inaccurate collection notices being erroneously sent to taxpayers. This can be especially devastating for low-income taxpayers, particularly those who have been hit hard by the pandemic.”
One issue may be how the IRS can reprogram its automated systems to turn off the automated notices without causing other bottlenecks during tax season. “Most taxpayers don’t realize they are automated,” said Nina Tross, executive director of the National Society of Tax Professionals. “When they don’t make sense, or when they’re not accurate or they’re not complete, and things are not done on a timely basis, there really is no one at the service who is aware of that. All the system is doing is generating these notices on a preset schedule that has been determined by the software.”
National Taxpayer Advocate Erin Collins testified before the House Ways and Means Oversight Subcommittee on Tuesday about the problems she is seeing this tax season. “During the past 18 months, the inventory backlog has continued to snowball,” she said. “We need to put the processing backlog behind us. We need to get the IRS out of the hole it currently finds itself in and get the IRS to a stable and healthy condition so it can perform its core mission.”
The agency is struggling to catch up with the backlog of millions of paper returns it’s facing from last year. “The IRS still has around 3 million returns that must be scanned, transcribed and processed,” said Collins. “When the IRS requires additional information and proposes an adjustment, it sends the taxpayer a written notice. Taxpayers respond in writing, causing more delays. All of these delays contribute to the taxpayer’s frustration and confusion.”
House Ways and Means Oversight Subcommittee Chairman Bill Pascrell, D-New Jersey, said he has heard about the problems with the automated notices. “I also know that taxpayers are confused by the automated notices they are receiving for returns already filed and taxes already paid,” he said in his opening statement. “The backlog of returns and correspondence is delaying refunds and causing numerous issues for both individuals and businesses.”
Collins suggested some ways to deal with the automated notices. “Suspend all automated collection notices until the IRS gets current in processing original and amended tax returns and taxpayer correspondence,” she wrote in her prepared testimony to the subcommittee, echoing recommendations from the coalition of tax pro groups. “Premature lien and levy notices have been issued to taxpayers in circumstances where tax returns or correspondence that show the taxpayers do not have liabilities have not yet been processed. That should not happen. The IRS has begun to suspend some notices to reduce confusion and frustration for taxpayers still waiting for their return or correspondence to be processed. This action has the added benefit of freeing up employees who ordinarily process taxpayer responses to assist with return processing.”
