The National Taxpayer Advocate Erin M. Collins released her first report discussing some of the difficulties confronting taxpayers and the IRS during the COVID-19 pandemic, which has only exacerbated problems with taxpayer service as the IRS struggled to implement the provisions of the CARES Act and the Taxpayer First Act.
Although the report praises the IRS for acting quickly to postpone over 300 filing, payment, and other time-sensitive deadlines, provide broad relief from compliance actions under its “People First Initiative,” a7nd disburse some 160 million Economic Impact Payments (EIPs) authorized by the CARES Act, there have been notable adverse taxpayer impacts, including:
Taxpayer Challenges Arising from COVID-19 Pandemic
- Taxpayers who filed a 2019 paper return and are entitled to refunds may be in for a long wait. The IRS had to suspend the processing of paper tax returns, and as of May 16, it estimated it had a backlog of 4.7 million paper returns. Although the IRS is reopening some of its core operations, it is not clear when it can open and process all the returns sitting in mail facilities.
- Some taxpayers whose returns were mistakenly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds.
- The IRS shut down its Accounts Management telephone lines, so taxpayers could not reach a live assistor by telephone, as well as its Taxpayer Assistance Centers, making it impossible for taxpayers to obtain in-person assistance. The IRS also shut down its mail facilities, so it was unable to log or process taxpayer responses to compliance notices.
- IRS systems prepared over 20 million notices during the pandemic that could not be mailed due to closure of notice production centers between April 8 and May 31. The IRS is mailing these notices now. However, some collection notices bear old dates and include response deadlines that often have passed. The IRS plans to include “inserts” with these notices explaining that response deadlines have been postponed.
Taxpayer Challenges Relating to the CARES Act
- Individuals who did not receive some or all of their EIPs may have to wait until next year to receive them. To date, the IRS has taken the position that most taxpayers who did not receive their full payments must wait until they file their 2020 income tax returns to claim the amounts as credits against their 2020 tax liabilities, even though there is no legal constraint on the IRS’s ability to issue additional EIP amounts as advance refunds during 2020.
- Employers are struggling to determine whether they qualify for the Employee Retention Credit (ERC) and in what amounts. The ERC is a complex, refundable tax credit that requires employers to determine when a trade or business was fully or partially suspended by government order; the employer’s number of full-time employees; what constitutes qualified wages; whether a business’s operations post-COVID-19 are comparable to its pre-COVID-19 operations; and the application of aggregation rules.
- Businesses are facing challenges when seeking to utilize the CARES Act provision that authorizes the use of net operating losses to offset taxable income in prior years (and in some cases to receive refunds).
While the IRS has begun reopening its operations, it will take some time before they are restored to full capacity. We encourage you to visit IRS.gov for a status of your filed return. Also, Reynolds + Rowella’s Tax Director Pat Butler is available to discuss any tax issues or questions you may have.
REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING
Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.
The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.