While the IRS's efforts to contend with the COVID-19 pandemic's effects on taxpayers and tax administration are appreciated, the Service should do more now to ensure taxpayers, practitioners, and the agency itself aren't bedeviled in 2023 by now-chronic delays in processing tax returns and answering taxpayer correspondence, the AICPA said in a letter to IRS and Treasury officials.
The letter from Jan F. Lewis, CPA, chair of the AICPA Tax Executive Committee, is dated July 11 and addressed to IRS Commissioner Charles Rettig and Lily Batchelder, Treasury's assistant secretary for tax policy. It reiterates some points of recommendations the AICPA has made previously on its own and as part of the Tax Professionals United for Taxpayer Relief Coalition, with other professional organizations and firms, earlier this year.
The letter applauded in particular the IRS's managing of newly enacted taxpayer relief provisions since 2020, such as economic impact payments and advance child tax credit payments, as it scrambled to adapt its workforce and methods to pandemic protocols. But to lessen the risk that piled-up unprocessed returns and delays will persist into a "another frustrating tax season next year for taxpayers and practitioners, and rebuild trust with the American public," the IRS should undertake greater or realigned efforts along four fronts, the letter suggested. Specifically, the IRS should:
- Clearly and publicly report on the status of all its operations, including return and mail processing and reply times, and regularly give updated projections of when its inventories of unanswered mail and unprocessed returns will return to pre-pandemic levels;
- Continue its use of redeployed staff in "surge teams" to attack those inventories where needed;
- Continue its suspension of automated compliance notices and actions until it can better resolve taxpayer issues more timely and properly; and
- Offer a penalty waiver for reasonable cause similar to the procedures for first-time abatement (FTA) but without affecting taxpayers' eligibility for FTA in future tax years.
Communicating operations status
The letter noted that the IRS does provide some backlog updates, such as on its "IRS Operations During COVID-19: Mission-Critical Functions Continue" webpage, but contends that most of the information there leaves much to be desired in clarity, completeness, and timeliness. Under the page's "What You Can Expect" dropdown menu, inventory levels of selected types of returns are reported weekly, but only the current week can be viewed, with no comparison to previous periods, so that visitors to the site are unable to tell whether the inventory levels are getting better or worse. Some parameters reported there have not been updated in months or even years, the letter noted.
"Taxpayers deserve to have more certainty regarding when their returns and correspondence will be processed and acknowledged, and the progress being made in working through the backlog," the letter stated. Additional information on dates through which mail has been opened, the number of mail items still unopened, and expected IRS response time would help, the letter suggested.
Temporarily reassigning personnel to critical processing areas, such as the IRS's Accounts Management function, should continue as a tactic to address the backlog, the letter recommends. In addition, the IRS should provide regular staffing updates on its new hires in these areas, including how many open positions have been filled, when new employees will begin work, and the Service's plan for unfilled positions in customer service, returns processing, and other critical areas.
Separately on Tuesday, the IRS announced in a news release it is hiring 470 revenue agents and advertised dates and times when persons interested in applying may attend any of four scheduled online question-and-answer sessions.
Suspension of collections actions
The AICPA letter noted that an IRS official indicated in May in comments at an American Bar Association Section of Taxation conference, reported in Tax Notes, that the Service would soon resume some automated compliance actions. However, the AICPA letter said, "Until the IRS is able to respond to taxpayer replies to notices in a timely manner, these compliance actions should not be restarted."
In many instances, taxpayers and practitioners have little way to know how long they should expect the IRS to take to answer replies to notices, the letter states. The last update to the "IRS Operations During COVID-19" webpage regarding this wait time was dated Jan. 13, 2021, and even then said only that the time is "taking longer than usual" and "varies depending on the type of issue."
The letter suggested, as the AICPA and coalition have previously, that the IRS should not first consider taxpayers' penalty relief for FTA and then reasonable cause, but the other way around, and that the reasonable-cause procedure should be streamlined. This is because FTA, while administratively easier to process, is limited in its availability. Generally, taxpayers may qualify for FTA only if they have not been granted one in the previous three years.
"A taxpayer should not be required to use up its eligibility for FTA relief for the next three years because the basis of their request for relief is due to COVID-19 effects or lingering impacts on IRS operations," the letter stated.
The AICPA continues to advocate for better IRS services; visit the webpage describing AICPA advocacy efforts to learn more.
— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.