When the U.S. Department of the Treasury was tasked with a myriad of pandemic-related responsibilities in 2020 and 2021, it should have been clear then that Treasury and the Internal Revenue Service would struggle with fundamental tasks in 2022.
Struggle, however, is not a strong enough word to encapsulate the problems the IRS has faced this filing season. Extreme return and correspondence backlogs at the IRS mean that taxpayers are receiving confusing erroneous notices, businesses are desperately waiting on Employee Retention Credit refunds, and taxpayers and practitioners are spending hours dialing the IRS trying to reach an employee.
Unfortunately, the gap between the Treasury Department’s dire warnings about this filing season and the actions they have been willing to take to help taxpayers is substantial. The IRS still has an opportunity to show taxpayers that it understands the need to do more to help individuals and businesses who are doing their best to comply with our nation’s tax laws during a difficult filing season — but the clock is ticking to enact measures that can offer quick relief.
Over the course of the first quarter of 2022, the IRS announced a series of measures intended to blunt the impact of the backlog on taxpayers. These measures include the creation of two “surge” teams to deal with returns, pausing automated notices to taxpayers, delaying a planned closure of an IRS processing facility and securing direct hiring authority to more quickly hire IRS employees.
While I applaud these actions, I question the speed at which these measures were rolled out, considering that Commissioner Rettig publicly stated on March 17 that the IRS has had a backlog plan “since the pandemic began.” Why the IRS has not exhausted the full arsenal of tools, resources and relief at its disposal is confounding.
By default, the IRS will apply a “first-time abate” waiver for anyone requesting penalty relief, but that option can be used only once every three years. The IRS could announce today that it will offer taxpayers a special waiver for penalties resulting from COVID or IRS backlog issues. Offering a special “backlog” or COVID penalty waiver would preserve the use of first-time abate. Additionally, this special waiver should be streamlined to avoid a written request that will further burden the backlog of unprocessed mail.
Another measure the IRS could announce today would be that it will align requests for account holds with the time it takes the IRS to process any penalty abatement requests. For example, if an account is on hold for eight weeks, but it takes the IRS 20 weeks to process the penalty abatement request, this could result in further escalation of the notice (liens or levies) to the taxpayer. The account hold should align with how long it currently takes the IRS to process the request.
Finally, the IRS should postpone its self-imposed use of the Schedules K-2 and K-3 until the 2023 filing season. While intended to provide consistency in the reporting of foreign-related information, the instruction changes during a busy tax season, coupled with the confusing transitional relief and with the lack of e-filing for these schedules, will, we fear, only add to the backlog.
More than 200 bipartisan, bicameral members of Congress have joined the AICPA, the National Taxpayer Advocate and a diverse practitioner coalition to call for these or similar recommendations. The simple elegance of these measures is that they can be implemented today and would reduce taxpayer contact with the beleaguered IRS.
It’s perplexing that the IRS did not announce these or similar measures back in January when it publicly acknowledged how frustrating this filing season would be. There is still time to adopt these measures, and I urge the IRS to give them — and taxpayers — the consideration they are due.
