Treasury and Taxpayer Advocate warn of difficult tax season: What to know and do now

According to recent statements and governmental testimony, taxpayers can expect more frustration as the IRS prepares to open the 2021 tax filing season on Jan. 24.

On Jan. 12, the National Taxpayer Advocate, Erin M. Collins, released her 2021 report to Congress. Collins leads the Taxpayer Advocate Service (TAS), an independent organization within the IRS that advocates on behalf of U.S. taxpayers. “While my report focuses primarily on the problems of 2021, I am deeply concerned about the upcoming filing season,” Collins states in an IRS release announcing the report.

The report comes just two days after officials from Treasury warned reporters that they are anticipating substantial challenges, and that taxpayers should be prepared during the 2021 filing season for delays in the processing of tax returns and refunds.

To minimize possible delays and frustration, Treasury recommends taxpayers take the following actions:

• File tax returns electronically whenever possible, file as soon as possible, and file accurately.
• Utilize direct deposit to receive any tax refunds.
• Be sure accurate amounts are included related to advance Child Tax Credits (ACTCs) and Economic Impact Payments (EIPs). To verify amounts and ensure accurate reporting on 2021 tax returns, taxpayers are encouraged to retain copies of the following letters: 1) Letter 6419, “2021 advance CTC,” and 2) Letter 6475, “Your Third Economic Impact Payment.” For ACTCs, Taxpayers can also verify amounts received by going to the Child Tax Credit Update Portal (IRS account required).

Background

As the report details, the IRS has been facing an increasing workload with a shrinking workforce. Over the last two years, the Service has been dealing with the same issues related to the Great Resignation as many other employers in the U.S., with many longtime employees taking early retirement and others leaving the Service for other reasons. With budget cuts in recent years, the IRS has been unable to hire new employees or replace those that are leaving, resulting in a workforce that is unable to provide necessary services to taxpayers.

Per the report, the IRS closed the 2020 filing season with more than 35 million unprocessed tax returns, and as of mid-December 2021, the Service still had approximately 6 million unprocessed individual tax returns and 2 million unprocessed amended returns. The IRS typically enters the tax filing season with about 1 million unprocessed returns, Treasury officials said.

In addition to the return backlogs, the report indicated that the Service is still dealing with a backlog of millions of pieces of taxpayer correspondence related to previous tax years.

Amid these backlogs, the IRS was also tasked with disseminating funds related to ACTCs and additional EIPs. While beneficial for many taxpayers, these payments may result in additional delays in the processing of tax returns and refunds because the IRS will match amounts reported as received by taxpayers with their own records, a process that may result in notices that require a response from the taxpayers and/or their tax professionals. These communications will only add to the backlog at the IRS.

Taxpayers should prepare for not only delays in processing of returns and refunds, but also challenges in their ability to communicate with the IRS when problems arise. The report states that only about 11% of calls were answered last year.

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