IRS Backlog Issues and the Effect They Will Have on Tax Season

Tax season is here, and many taxpayers are gathering documents hoping to get a speedy return.

But if they are counting on getting their taxes processed promptly, they may be in for a rude awakening. The IRS is currently struggling with a backlog of taxes from the 2020 season that is slowing them down considerably.

The organization is moving slowly due to new tax legislation introduced to handle the coronavirus crisis as well as inefficient systems. Read on to find out more about what’s going on and what can be done to improve the situation.

The IRS Problem

Although the new tax year has started, the IRS is still working through an estimated 35 million 2020 returns that require manual processing. The organization is short staffed and dealing with more work than it can handle. Mark Everson, who served as an IRS commissioner during the George W. Bush administration is quoted as saying, “The service is in the roughest shape it’s been in 50 years.”

Carlos Lopez, an enrolled agent who’s dealt with the IRS on behalf of clients for nearly four decades, also weighed in on the matter with a quote to Politico Pro.  “It’s the age of the dinosaurs at the IRS and I think they need to get off their cans and do something about it,” he said

And if you want to get in touch with the IRS by phone, good luck. Only 1 in 9 taxpayers have been able to get through. Those that were successful experienced average wait times of 23 minutes.

The issues may be due to the IRS budget which has declined by about 20% in the last 10 years. Meanwhile, the number of tax returns filed has increased by 13%. The lack of funding means the organization is using computers that are the oldest in major tech systems in the federal government.

In addition to tax returns, the IRS is also dealing with distributing COVID 19 and child credit payments to eligible Americans which adds to the workload. Congress provided extra money to process those payments, but the one-off funding was not enough to get them out of the hole they are in.

The Biden Administration’s Build Better Act would provide $80 billion in additional funding to the agency over the next 10 years, but whether that package sees the light of day is another story.

The Taxpayer Problem

While the IRS buckles under the weight of unprocessed returns, taxpayers are seeing their share of inconveniences. In addition to having to wait on returns, they have also received mistargeted notices, liens and levies due to the backlog. And being unable to get in touch with the organization by phone leaves them with few options in the actions they can take.

Organizations representing tax professionals are lending a helping hand. They sent a letter to IRS Commissioner Charles Rettig and The Department of Treasury’s Assistant Secretary for Tax Policy, Lily Batchelder making the following suggestions:

• Discontinuing automated compliance actions until the IRS can provide resolution to the matters at hand.
• Aligning requests for account holds to the time it takes for the IRs to process penalty abatement requests. So, if it is going to take the IRS 6 months to resolve the matter, the account should be on hold for 6 months.
• Offering a reasonable cause penalty waiver like the first-time abatement waiver that does not affect a taxpayer’s future FTA eligibility.
• Providing taxpayers with relief from underpayment and late payment penalties for the 2020 and 2021 tax years.

If the IRS accepts even one of these suggestions, much less all four, it will provide relief for taxpayers and tax professionals both in terms of financial difficulties and time restraints. They would also help the IRS by reducing calls and mailings allowing the organization the time they need to deal with tax matters.

The letter’s signatories included Latino Tax Pro, the National Society of Black CPAs, Prosperity Now, the American Institute of Certified Public Accountants (AICPA), the National Association of Tax Professionals (NATP) and the National Association of Enrolled Agents (NAEA). 

It is hopeful that the IRS takes the suggestions of the tax agencies, so this season runs smoothly. We can only cross our fingers and hope for the best results.