National taxpayer advocate to CPAs: Tell us where the challenges are

By Paul Bonner

CPAs and other tax professionals can help the Taxpayer Advocate Service (TAS) identify the most acute problems within the IRS, said National Taxpayer Advocate Erin Collins on Thursday in an online AICPA Town Hall meeting.

The session, attended by about 9,000 participants, hosted Collins to speak about the IRS's current issues in providing services to taxpayers while it digs itself out from under backlogged returns and correspondence from the prior year. As national taxpayer advocate, Collins acts as taxpayers' voice to the Service and provides assistance to taxpayers and their representatives with individual and systemic problems with the IRS and protecting their rights.

"Part of the job that I have is to get the word out about what we are seeing within the IRS," Collins said. "But just as important is what you are experiencing with respect to your taxpayers and clients; we need to know where the problems are, what the challenges are. ... We are all in this together."

In response to questions from Melanie Lauridsen, senior manager–AICPA Tax Policy & Advocacy, Collins discussed details and implications of the IRS's recent announcements regarding its decision to suspend issuing some automated taxpayer notices. This was also the subject of Collins's own blog post Wednesday on the TAS's webpages. Some confusion persists over exactly which notices are suspended and to what effect.

Even though the notices may not be sent, taxpayers might still be assessed interest and penalties on any underlying genuine tax deficiency they owe, Collins stressed. And what happens next may be paramount.

"The IRS has listened, and it looks like the majority of the automated notices are being shut down," Collins said. But, she added: "The question is how long."

She said she hopes it's at least until the IRS clears its correspondence backlog. But once the IRS does resume issuing the notices, there may be another logjam as an onslaught of taxpayers request appeals and petition the Tax Court, Collins warned. That's what happened two years ago, when the IRS temporarily suspended most notices and then resumed them.

"So we are talking with Collections folks in the IRS about when we go back online and the notices begin to get issued, that we spread them out, that they all don't go out on day one," Collins said. "Because the last thing you need is for your members to have their mailbox hit with 400 clients on the same day, all getting the correspondence."

Lauridsen asked Collins if the IRS is able to implement the recommendations in her most recent Annual Report to Congress. Her office does consider what can be done administratively, Collins said.

"It's not just a wish list of things that would have, could have, should have happened, but rather things that the IRS could in fact implement to improve either taxpayer service or protect taxpayer rights," she said.

Collins also gave her assessment of IRS staffing, including recently announced "surge teams" to get the Service current on its overdue inventory while processing returns and correspondence in the current filing season. She said some evidence of progress might be seen as soon as this month, particularly if as many taxpayers as possible file electronically, as she has urged. Paper returns and forms remain what Collins has called the IRS's "kryptonite." And, she said, the IRS processes them on a "first in, first out" basis.

"They have to process all of the 2020 paper returns before they are going to start the 2021 paper returns," she said. "So, again, please have all the taxpayers file electronically because, otherwise, I don't think the IRS is even going to get to those [before] — May, June, or God forbid, July. It depends on how fast the surge team gets working."

A snowball effect persists within the IRS from having been fully shut down at the beginning of the pandemic, she said. While TAS was able to get its operations going again within a week, with employees working from home, the larger IRS was not able to get personnel back into processing centers nearly as fast, although employees who can do so have been working from home, she said.

"I do hear a lot of times from folks, 'When is the IRS going to start working?' They have been working; it's just maybe not in the normal situation that people perceive," Collins said.

Progress has been made in processing Forms 941, Employer's Quarterly Federal Tax Return, claiming an employee retention credit, Collins said. By about two weeks ago, the backlog of about 2 million returns at the end of 2021 had been roughly halved, she said. But only when those are finished will the Service attack amended Forms 941, she said. And despite the IRS's supposedly taking them in order, she said she has heard reports, as Lauridsen also said, that some taxpayers are receiving credits for later quarters of 2021 than the first.

Asked about whether the April 18 due date for 2021 returns should be postponed, Collins said that could cause problems of its own, including diverting IT and other resources to reprogram the deadline in a slew of contexts. And states then must decide how to harmonize their filing deadlines with the federal government's. Collins also repeated her earlier identification of a problem with the 2020 and 2021 filing season postponements: They should also have extended the statute of limitation on refund claims but didn't.

"It does cause unintended consequences," she said.

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.

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