As filing season gets underway, there are steps the IRS should take to provide taxpayer relief as the agency struggles to process returns and provide other essential services amid the COVID-19 pandemic, according to a coalition of tax professionals.
The pandemic has had a “significant impact” on tax administration in the last three years, Veronica Vera of the American Institute of CPAs and Chartered Institute of Management Accountants noted during a January 25 briefing presented by the Tax Professionals United for Taxpayer Relief Coalition.
As a result, the IRS has experienced an enormous volume of telephone calls — up to 1,500 per second — and answer rates have declined during the busiest filing time of the year, Vera said.
And because of regulatory changes, “taxpayers are feeling despair and frustration,” Vera continued.
Therefore, Vera said, the coalition has come up with four recommendations “to provide much-needed relief to taxpayers.”
Suggestions for Relief
First, the IRS should discontinue automated compliance actions until it can devote the necessary resources to properly resolve taxpayers’ issues, said Thad Inge of the National Association of Enrolled Agents.
“The reasoning here is pretty simple,” Inge explained. “The IRS remains way behind on processing all types of returns and payments and correspondence, but these automatic notices are still going out. And so folks are replying to the notices, they’re sending in their response, they’re sending in their reasoning. And then the matter continues to escalate because those responses aren’t being processed. And they get penalties, further notices.”
Second, the IRS should align requests for account holds with the time it takes the agency to process any penalty abatement requests, according to the coalition.
Ben Deneka of H&R Block noted that as of mid-December 2021, there were nearly 5 million pieces of unprocessed taxpayer correspondence, and it’s taking a lot longer than usual for the IRS to process them. Account holds are ending before correspondence is processed, requiring taxpayers or their representatives to request subsequent holds until processing is complete, he explained.
“So, ideally, the account hold would remain in place at least as long as the time frame that the IRS needs to process the correspondence,” Deneka said.
The coalition also recommends that the IRS offer a reasonable cause penalty waiver similar to procedures for the first-time penalty abatement process without affecting the taxpayer’s eligibility for first-time penalty abatement in future tax years.
Currently, the IRS applies first-time penalty abatement before determining whether reasonable cause would apply, thereby barring the taxpayer from using first-time penalty abatement for the next three years, Deneka explained.
“A more equitable approach, as we propose, would be to grant taxpayers reasonable cause abatement first, without impeding the ability to claim first-time abatement in future years,” Deneka said.
The final recommendation is for the IRS to provide taxpayers with targeted relief from the penalties for underpayment of estimated tax and late payment for the 2020 and 2021 tax years.
The basis for this recommendation is that, in light of the problems plaguing the IRS, “you don’t know . . . whether the taxpayer is actually at fault,” Inge said.
“If the IRS is sending off a penalty because the computer says that a payment has not been made timely, there’s a good chance it’s because of a problem on their end, not because the taxpayer has done anything wrong,” Inge added. “And so because of these delays, people are getting penalties that are not legitimate. As a result, we believe there needs to be targeted relief.”
An IRS spokesperson told Tax Notes that the agency is reviewing the coalition’s request.
Extension?
During a question-and-answer session, panelists were asked about the possibility of the IRS extending the filing season.
Stephen Mankowski of the National Conference of CPA Practitioners replied that if the IRS extends the season, it should let taxpayers know soon and not “wait until April 1 to announce that they’re delaying.”
“And if they’re going to delay, they need to make sure that the payment of taxes as well as first-quarter estimated payments coincide with any possible extensions of time,” Mankowski added. “Otherwise, all they’re doing is really only helping those that may be getting refunds and possibly don’t have to do estimated payments. And that doesn’t help a lot of the people that are actually the ones that tend to file more toward the end of the filing season.”