Unprecedented delays from IRS: Next steps for Finance

If you and your team have noticed issues with your correspondence with the Service lately, you aren’t alone.

It’s been tricky to get in touch with IRS this past year, and some changes may be in the works to ease that pain.

‘Most challenging year ever’

The latest National Taxpayer Advocate’s annual report calls 2021 “the most challenging year ever for taxpayers” and IRS.

Due to the COVID pandemic, IRS had a backlog of paper business and individual tax returns from 2020 that it was still processing well into 2021. Millions of forms still hadn’t been processed by the end of the year. With tax season just starting, this backlog will only get worse.

Also, good luck if you’ve been trying to call IRS to ask questions or address issues: The agency received close to 282 million phone calls in FY 2021, and customer service reps answered only about 11% of those inquiries.

It’s been even worse for those who received notices from IRS about math errors and other problems.

The Service has been taking months to process any taxpayer responses to these notices, meaning the agency may have assessed penalties and taken other adverse actions against business taxpayers even if the company’s response was timely.

Pending IRS improvements

As you can imagine, this has created the perfect storm for IRS. But there’s light at the end of the tunnel. The Taxpayer Advocate has suggested some changes for IRS you might see down the line to improve things.

For starters, technology upgrades could be in the cards for IRS. The agency’s experienced significant budget cuts over the last few years, and expanding its budget is necessary to implement the upgraded IT infrastructure that it needs to work through a backlog of returns and taxpayer inquiries.

A bigger IT budget for the agency would allow for easier submission of electronic returns, including Forms 1099, and it could allow the agency to accept additional forms electronically in various formats.

There could also be better options for companies that are assessed penalties for late returns and other tax problems. The Taxpayer Advocate said IRS should allow these disputes to be settled in the U.S. Tax Court instead of in regular district courts.

This would give taxpayers a fairer shake since tax court judges have better knowledge of the law. The tax court also has more informal procedures at its disposal to settle cases, so it could be less costly in the long run.

What you can do now

While waiting for these changes, here’s how you can cope with current IRS delays in the meantime.

•   Submit forms quickly. The earlier your team can get forms, including Forms 1099, to IRS, the better. That way, you’ll have ample time to deal with any delays on the agency’s side. If you’re submitting any Forms 1099-MISC on paper, you only have until Feb. 28, 2022 to send them to IRS. There’s more wiggle room for electronic filers (March 31, 2022), but ASAP is best.

•   Try other options. For more general inquiries, IRS is encouraging professionals to use the resources available on irs.gov instead of calling and waiting on hold. You and your team may also be able to request an appointment in person at a local IRS office to get assistance.

•   Be patient. If you’ve already submitted forms or responses, the agency says there’s no need to call to check on the status or resubmit the forms. They’ll be processed in the order they were received. The time frame varies depending upon the issue.