Senators urge IRS to provide better taxpayer support

A group of Senate Republicans, led by Sen. Mike Crapo, R-Idaho, the ranking member on the Senate Finance Committee, is asking the IRS to do all it can to help taxpayers this season.

In a letter Thursday to Treasury Secretary Janet Yellen and IRS Commissioner Chuck Rettig, the lawmakers asked the agency to give taxpayers targeted, temporary relief during one of the most challenging tax seasons in recent memory.

Taxpayers and tax professionals have been experiencing problems this filing season in getting through to the IRS for help as the agency remains understaffed and deluged by a backlog of new tax returns and millions of old returns filed last year that have not yet been processed. Tax professional groups have been pressing the IRS to at least turn off the automated notices that have been sent by the IRS’s computer systems asking them to file tax returns and pay balances that may have already been sent in the mail, but not yet opened or fully processed. On Wednesday, the IRS announced that it would suspend many of the notices until it gets through the backlog (see story).

In addition to the problem with the automated notices, the senators identified many of the challenges their constituents face, and recommended several areas where the IRS could use its existing authority to offer relief to taxpayers without requiring legislation to be passed in the evenly divided Senate.

“We continue to hear from constituents who have not yet had their paper and amended returns processed, and due to a lack of information on IRS processing dates and timelines, do not know if their returns ever made it to the IRS or if they should re-file,” said the lawmakers. “Other taxpayers are waiting for their tax refund, some related to their 2019 tax return. This situation is untenable. When our constituents cannot get help from those tasked to administer our tax laws, it diminishes the integrity of our voluntary tax system.”

The senators recommended the IRS halt automated collections for a meaningful period of time; provide targeted tax penalty relief for taxpayers; delay the collection process for filers until any active and pending penalty abatement requests have been processed; and communicate the status of IRS operations in a clear and timely manner, among other recommendations.

The American Institute of CPAs endorsed the lawmakers’ recommendations: “The AICPA is pleased to support members in their calls for the IRS to take specific action to mitigate the anticipated challenges of the current tax filing season,” said AICPA vice president of taxation Edward Karl in a statement. “We wish to highlight the recommendation to modify the complex and confusing implementation of Schedules K-2 and K-3 by delaying until next tax year. AICPA members are already concerned about IRS backlogs and diminished services so delaying the implementation of Schedules K-2 and K-3 will help IRS focus on mitigating the problems at hand.”

For tax years starting in 2021, partnerships are now required to file a Schedule K-2 (partners’ total international distributive share items) and a Schedule K-3 (partner’s share of international income, deductions, credits, etc.), if the partnership has relevant international tax items, according to PwC.

Tax professionals have been running into problems with the IRS backlog as well. “The IRS needs to move faster,” said Donald Williams, owner of Williams Accounting & Consulting, a firm with offices in Atlanta and New Orleans. “They need to employ more folks because their backlog for processing people’s returns, especially those that owe, makes the accountant look bad. It makes our job harder. I had a client who we sent in a document nine months ago, and they showed it as delivered nine months ago, and the IRS still has not processed their return. The client is upset and frustrated. You have to make them understand it’s not us.”

The IRS is reshuffling approximately 1,200 employees from other parts of the agency in an effort to meet demand with new “surge teams” while also trying to hire thousands more employees but only attracting a handful (see story).

Austin processing center closure

In the meantime, the IRS may need to halt its plans to close down its processing center in Austin, Texas, by September 2024. A report released Thursday by the Treasury Inspector General for Tax Administration recommended that the agency put those plans on hold until the IRS’s hiring challenges and substantial backlogs at its remaining processing centers are addressed.

“The IRS continues to experience challenges hiring and retaining an adequate workforce to meet its workload demands at the tax processing centers,” said the report. “As of August 2021, TIGTA estimates that the IRS is facing a total staffing deficiency in its Submission Processing function of around 2,598 employees. Although the IRS has several initiatives underway to help address its hiring shortages, to date these approaches have not been successful.”

The report noted that the hiring shortfalls have been exacerbated since the COVID-19 pandemic and are resulting in millions of tax returns not being processed and tax refunds not being issued on a timely basis, and taxpayers not receiving timely assistance with their tax account issues. Last June, IRS officials said they would pause their consolidation efforts until early 2022.

During a hearing Tuesday of the House Ways and Means Oversight Committee with National Taxpayer Advocate Erin Collins, Rep. Lloyd Doggett, D-Texas, suggested the agency should hold off on closing the facility.

“With over 10 million paper returns left over from last year, I can understand why you describe these as the IRS’s Kryptonite,” he told Collins. “Many of these returns are processed right here in my hometown of Austin, where as you know we have one of three IRS processing centers that handle paper returns. I’ve met with employees there over the years. I know there is a dedicated workforce there that is working hard to address this problem. I’ve also heard firsthand from them over previous months some of the challenges they have faced in being back in the workplace because of questions about adequate protection, social distancing, testing and the like.”

He argued for paying IRS employees better wages and increasing the budget for the agency.

Kenneth Corbin, commissioner of the IRS’s Wage and Investment division and chief taxpayer experience officer at the IRS, responded to the report and the problem of shortfalls in the IRS’s hiring of employees needed for the Submission Processing function.

“This is an ongoing challenge as staffing deficiencies have continued to impact the IRS,” he wrote. “These challenges have been exacerbated due to the COVID-19 pandemic. We have addressed the staffing shortfalls by contracting with a temporary hiring agency and adjusting filing season hiring. We are also consolidating clerical position descriptions to provide more flexibility to move employees to areas within the Submission Processing function where personnel shortages exist.”

The IRS is reevaluating whether it will indeed close down the Austin facility and in the meantime is continuing to hire full-time employees for the 2022 filing season. Any changes in the decision on the facility may not be announced until 2024.