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Interview: Looking Ahead to the 2022 Filing Season and What to Expect

Posted on Jan. 25, 2022

Beverly Winstead of the Law Office of Beverly Winstead LLC and Paul Miller of Miller & Co. LLP discuss the 2022 filing season’s challenges and considerations in the third year of the pandemic.

This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: tax season 2022.

This year the U.S. individual income tax filing season begins January 24, putting things back on a normal schedule after a delayed start in 2021. But that's about the only normal thing this year.

This is the third filing season since the start of the coronavirus pandemic, which has already caused significant delays and backups at the IRS. Add in the new provisions from the American Rescue Plan Act, like the advanced child tax credit and unemployment benefits, and there's a lot that practitioners and taxpayers have to take into account this year.

Here to talk more about this is Tax Notes contributing editor Marie Sapirie. Marie, welcome back to the podcast.

Marie Sapirie: Thanks for having me.

David D. Stewart: Now, I understand you talked with two practitioners about the 2022 filing season. Can you tell us about them?

Marie Sapirie: I spoke with two practitioners with extensive experience in return preparation, both of whom founded their own firms.

Beverly Winstead is a tax attorney in Maryland who provides legal counsel to individual taxpayers, corporations, and nonprofits, as well as return preparation services through her firm the Law Office of Beverly Winstead. She is also an adjunct professor at her alma mater, the University of Maryland School of Law, where she was the director of the Low-Income Taxpayer Clinic.

Paul Miller is a CPA in New York, where he runs Miller & Company LLP, an accounting firm with multiple offices in New York City and around the country, and over 25 employees. His firm offers tax accounting and consulting services for approximately 3,000 individuals and business clients.

David D. Stewart: What sort of issues did you talk about?

Marie Sapirie: We spoke about the particular challenges that taxpayers and practitioners are likely to experience in the upcoming filing season, from the processing delays at the IRS to the implementation of legislation passed last year.

David D. Stewart: All right, let's go to that interview.

Marie Sapirie: Thank you, Beverly and Paul, for joining me today to discuss this year's tax filing season.

Paul Miller: You're welcome. Appreciate you having us on.

Beverly Winstead: Thank you.

Marie Sapirie: First, let's talk about the impact of the IRS's backlog. The IRS has already sounded the alarm that this year's filing season may be more turbulent than in years past. That announcement came right as the taxpayer advocate wrote in her report to Congress that last year was the most challenging year that taxpayers and professionals have ever experienced. A large part of the reason for the likely challenges is that the IRS is starting the new filing season with a backlog of unprocessed returns from last year.

What has been the impact of that backlog so far on taxpayers? How do you recommend the taxpayers prepare for this filing season?

Beverly Winstead: The impact that I'm seeing is that it's really been a lot of frustration amongst the practitioners, people that practice like myself, because we know we can't really help facilitate IRS processing the returns. There's also frustration from the taxpayers because they need their money. They need their refunds.

Also, as you can see, frustration from Taxpayer Advocate Service, because there's nothing that they can do also. They have very little ability to help facilitate the IRS with actually moving these tax returns along. I'm sure frustration from the IRS also, because they want to move faster, but they just really don't have the resources to really do everything that they've been tasked to do.

Paul Miller: Last year was very difficult for the constant delays and up to the very last minute, the government waiting for the delay, as in just the case with Hurricane Ida. They waited until the very last minute, which puts people under a lot of pressure and gives people the opportunity to delay.

For example, there's an extension right now of the 2020 tax filing for people affected by Hurricane Ida up until February 15. You are already in the commencement of 2021's tax filing, and you still have an open door for 2020. The IRS announced that there were 6 million returns backlogged, and they shut down the electronic filing system for their annual maintenance on January 3, which is very unusual considering the fact that you extended the deadline for both estimated tax payments, as well as any filings due on 10/15.

You have a lot of people who haven't filed, you have a tremendous backlog of 6 million returns, which is 5 million more than usual, and the IRS not really talking still much about either the IRS, the Treasury, or Social Security that got hacked last year. There's been Senate meetings, but there's been no disclosure on it.

The IRS is holding a lot of people's refunds because they don't even know if the return that they're looking at is actually the return that was filed.

I've had numerous clients had to re-file. I've had numerous clients that have not gotten their refunds, and it's been a major, major problem. As a preparer, I don't have many answers for clients other than when we call the tax practitioners hotline, they tell us that they're in process or they ask us for more information.

It's going to be very interesting this year to see how these new pin numbers work out with the filing of the return and if that'll cause further delay. Because with the hacking of the government, the government simultaneously issued an alert for everybody to get a pin number, and now these pin numbers come in the mail. Coming in the mail and having to coordinate with however many people you prepare their returns for is going to really further delay, or cause more problems.

Those are some of the highlights. I think it's going to be a challenging year. We've in my office have also braced for the fact that we could, as could anybody, be affected by COVID-19. We've all prepared, in that I've given out tests to every one of my staff members, so that they have multiple tests in case they do end up having to bow out for a week or 10 days. Frightening times.

Marie Sapirie: Turning to the question of customer service at the IRS versus enforcement, calling the IRS to get questions answered has been especially difficult for taxpayers recently. The taxpayer advocate's report said that the IRS's customer service representatives answered 32 million calls of the 282 million that the agency received last year.

In light of the customer service difficulties, the taxpayer advocate and other professional groups have recommended that the IRS needs to prioritize taxpayer service over compliance efforts. What would you like to see the IRS do to improve customer service?

Paul Miller: I think I would like to see the agent on the phone be available to answer or resolve more of the problems on the phone. They should task the person or the agent that they put on the phone with the capabilities of resolving the issue at hand.

I think that a lot of times it's a call back. They can handle a few of the tasks. They can't handle the majority of the tasks. It's also incredibly difficult today to get an auditor on the phone. I think that if I was running the IRS, I would grant more abilities to the people answering the telephone.

Beverly Winstead: That's actually a very good point, Paul. I think one of the things I learned back in December, which I didn't know, is that IRS uses the same people who answers the phones to also process the returns. If the returns are getting processed, no one is answering the phones. If they're answering the phones, the returns aren't getting processed.

Now we're in a situation where we're about to go into another tax season, as Paul mentioned. IRS is behind 6 million tax returns. Now is the time when taxpayers generally want two things. They want to be able to call IRS and have IRS answer the phone, as well as also get their returns processed. Two competing interests if the person who answers the phone is also processing the return.

I'm really concerned about this tax season also, because as I said before, it's a lot of frustration from everybody. But when it comes to customer service, IRS definitely needs to answer the phone and, as Paul says, be able to resolve the issue.

Everything starts with, they're just under staffed. They really don't have the capacity to do what they're tasked to do, and I can only imagine, if we're 6 million behind now, by the end of this tax season, I would venture to say we're probably going to be about 8 million behind. It's time to just brace yourself.

Marie Sapirie: Continuing with the topic of prioritizing customer service, there have been multiple calls for the IRS to suspend all automated collection notices until the agency is current, or at least more current, on processing the original and amended returns and the unprocessed correspondence. There also seems to be some interest in Congress about pausing automated notices.

How are the processing delays and the automated notices in particular affecting taxpayers? What should we expect going into the new filing season?

Paul Miller: I think anybody who gets an IRS notice is disturbed. I think the intent to levy is a very disturbing letter. I think I would like to see less of that.

I think, again, it has to be a re-analysis of what they're doing. They immediately send out these letters when they may have the information a person may have made a payment. Keep in mind that with the IRS being shut down, a lot of payments were being made manually.

When the payments are being made manually, we saw a lot of mailmen not delivering mail and a backlog in mail. A lot of payments have been sitting there. I personally had a client who had a 2019 return, which was in a box delivered to the IRS, and it was just sitting there, and they're still sending out letters to him, even though they've received this return.

It's not an easy answer. The system is broken and it's not easy to fix. But I think if they generally make strides to say, "OK, this works, this doesn't work," and try to move more readily, Like Beverly says, having a person answering the phone and inputting the return doesn't make a lot of sense.

I think they should open up the telephone lines more. I've never heard any individual not complain about being on a telephone call with the IRS. I don't understand why they can't invest more money. This is a source of revenue for the government. This is their source of revenue. Why not invest in it?

Beverly Winstead: I think this year is definitely going to be interesting in terms of the notices that are coming out. IRS really should focus their efforts on, "What is the most pressing issue?" And really, the most pressing issue is processing the returns and getting people their refunds.

I run the Low-Income Taxpayer Clinic at the University of Maryland, and a person who is a low-income taxpayer definitely is impacted by the fact that they're not getting their refunds.

I had a client call me in distress, and this was early on in the pandemic. Ordinarily you would be able to get TAS on the line and try to facilitate a more expeditious refund. But that definitely didn't happen, because TAS is inundated too. There's such a backlog with TAS also.

I called my local taxpayer advocate office, and the message on the phone was like, "Hey, we have a huge backlog, expect a call back within 30 days." What? 30 days?

The moratorium on foreclosures and evictions was lifted in August 2021, at least here in Maryland. People still haven't gotten their refund, and that's the money that they could use in order to be able to live another day in their apartment or house, particularly if they qualify for the earned income tax credit or the child tax credit.

This is more than just a financial, "I haven't gotten my tax return." It's also a livelihood, a health issue. Because if you are not able to pay your rent, guess what? You're stressed out. All this stuff impacts your health. You're trying to figure out where are you going to live? How are you going to feed your kids?

I would like to see IRS put their efforts and resources toward processing the returns as opposed to collection, or even audits. They really should be taking all their manpower and trying to figure out how they're going to process these returns.

Marie Sapirie: Let's move to some of the big tax law changes that have affected individuals. This past year, following the enactment of the American Rescue Plan Act, the IRS distributed additional economic impact payments and launched the monthly payments of the advance child tax credit.

How will the changes affect return preparation this season?

Beverly Winstead: I do tax returns too. Three years ago, I didn't have any gray hair. The last three years dealing with this pandemic, do you know how much gray hair I have gotten? Just dealing with the frustration of everything that's happening in this pandemic, and then now I can only just imagine how challenging this season is going to be.

You're going to have taxpayers that come in, who got the advance child tax credit or the third stimulus check, and they're not going to have their paperwork. They're not going to remember what they got. Even though IRS sends the letters.

Many people aren't going to remember what they got, and they're not going have that letter. We're doing a lot to try to educate people that they have to bring that letter in, but I know a lot of people aren't going to have it.

Once we file the return, they may be thinking they're going to get a certain refund back, and then when they don't get that refund back, we're dealing with a flurry of calls from taxpayers. "Why's my refund short?"

Then we have to stop and investigate why the refund is short if we can. We'll say, "Hey, send us a copy of the notice when you get the notice." Then the notice is not even really clear. It just says, "This is a math error. Your stimulus check wasn't calculated. Your recovery rebate credit was not calculated correctly."

It makes it look like we did something wrong as the taxpayer, like, we didn't do the return work, and that's not true. It's that whatever you said that you got as the recovery rebate credit didn't match what IRS has in their system that they gave to you.

This is another thing that kind of adds to the frustration, because now your client is like, "Well, you didn't prepare an accurate return. This is what I said I was supposed to get," and they rely on that. Once they approve that return and it says they're going to get a refund of $3,600, and then the refund comes back $2,400, well guess what? That's $1,200 that they had accounted for and allocated to cover some other expense. Right?

Paul Miller: Or may have spent already.

Beverly Winstead: Oh, yeah, or may have spent it already. So, that's one thing.

The other thing is that I know that's going to be a problem, I already foresee it, is people that got these advance child tax credits payments. Guess what? A lot of people just thought it was free money, particularly with the confusion around stimulus checks. They're just like, "Oh, I got my stimulus check." I have people call me, "Oh, I got another stimulus check."

When they go and file their tax return in 2022, and it has to be reconciled back to the 2021 tax return, and their refund is shorter than what they normally get in prior years, they're going to feel like they were taken advantage of, like they were duped by the government. They spent that money when they were getting it every month, not knowing that all that stuff had to be claimed on the tax return the next filing season.

It's funny because I'd said I was fasting from wine this year. But I may have to pick a glass of wine up once or twice during this tax season.

Paul Miller: Beverly brings up a lot of solid points. I think if you think about what's going to be a big challenge this tax season, you have to go back to the first topic that we talked about, which is the delay in filing.

What happens if some of these people, which is definitely going to happen, have filed and their returns haven't been processed? And they have an over-payment on their original return, or they have creditor-led carryforwards or they have some passive loss carryforwards?

Tax returns roll from one year to the next, and you could be challenged by getting the 2021 return before they've processed their 2020 return. This is going to create even more notices, more confusion.

I would really like the government to say today, "We're going to extend the deadline now, and let's not wait. And part of us extending the deadline is, maybe only until February 15 we're going to accept 2020 returns. Or just somehow you can only file your 2021 if you didn't, unless you've already filed 2020, or we have 2020 on file." I think that's something that they really need to think about, because as a preparer, I think about these things.

We have a client right now who has his 2019 return who can't get a creditor-led carryforward — it's a lot of money — and he has fraud on his account. To get that removed you have to physically get the taxpayer on the phone, and they have to identify themselves.

These are difficult things to do. First getting the IRS on the phone, second finding a time when the client is going to get on the phone with you. I find it overwhelming.

We've held people's returns to not manually file for the 21-day hold, three-week period for maintenance, and now we're going to start filing all these 2020 returns to try to have them recognized when they file their 2021 return. You just have to think about that for a second and say, "Wow, that's a lot. It's a lot that this is going on and nobody's paying any attention to this." It's not even a discussed item.

This is the government's money. It's the most important thing we need. It's going to be completely overwhelming. You see, no one's thinking about this like, "He's got a carryforward. Did he get his refund from last year? He didn't get his refund from last year. Are we going to get our refund this year?" It's a lot.

Marie Sapirie: Much like individual taxpayers, businesses have also seen new developments in the tax law, and they have to contend with those. What are the major issues you see in the filing season ahead for business taxpayers that you work with?

Paul Miller: I think business taxpayers, everybody is still forgetting about their forgiveness of their Paycheck Protection Program loan. I think that's an issue a lot of people are ignoring and we try to bring it to their attention.

A lot of people are still waiting for their second Economic Injury Disaster Loan, if they're available. It seems like that's gone radio silent at the government's end.

In terms of new tax developments, it's pretty similar to last year, except expanding for inflation, which is a big number. 

I just think any of the money that you've gotten from the government or received from the government, whether it'd be a local stimulus, a federal stimulus, "Is it taxable or is it not taxable?" is a big issue. But the restaurant revitalization program is not taxable, and a lot of clients have received that money in New York City.

Processing all of those nuances and changes for a preparer and a firm is a lot. Getting everybody up to speed and who's working remotely? Who's working in the office? You try to accommodate all of the staff to give them what works best for everybody, and everyone's anxiety, and everyone's fears and strengths, and it's difficult because this is a business that's very connected.

You're connected to the staff. You're connected to the clients. It's very hard to delegate that and not have them connected with you at some level, either in the firm or on a virtual meeting.

But I think, the same thing with businesses, the same thing with individuals, it's going to take a lot. I would like the government to recognize now if they're going to extend the deadline and not say, "Well, I'm just giving people an out." That's the government's mentality.

They think that if they extend the deadline, everybody will extend. But maybe that makes sense this year to give everybody a chance to catch up, including the IRS, and letting us know ahead of time, so Beverly doesn't have to drink too much wine, or I do.

I gave that up 9 or 10 years ago, but that's fine, I totally understand. Sleep is also something we could use a lot more of. But it is a stressful time for everybody, and I don't think it's fair to have all of us get grays, all of us need some type of relief to put this amount of pressure on people for a profession for a very short period of time.

Beverly Winstead: A lot of what Paul says I agree with, and I would say the exact same thing. I think the same issues that plague the individual processing also are plaguing the business community.

We filed applications for S corp conversions and C corp conversions, and have not gotten any response from IRS. If we've gotten a response, it's been a year, two years later. Clients are really in this holding pattern, because they don't know whether or not they are going to be approved for an S corp or C corp or if they should be filing as a limited liability company. That's one issue.

The other issue that, and I don't do a lot of work in this area, but definitely see is the employee retention credit. That was new under the Coronavirus Aid, Relief, and Economic Security Act. I know people are still trying to understand and see if it applies to them. The employee retention credit actually has been changed three or four times, under the various laws, so people are trying to figure out whether or not it applies to them.

Then, as Paul says, you got the PPP, you got the EIDL, you got grants, whether it's state and local. It may be taxable at the federal level, but not the state level, or nontaxable at the federal level, taxable at the state level. It's definitely a lot.

This is what I tell people who a lot of times they will just hire somebody just to do their return. It could be their uncle, cousin, or somebody like that. I don't think now is a time to just get somebody to do your return. You really need to go to a professional who has been keeping abreast of the tax laws and can help you navigate today's tax system.

Because I've been doing this for like 15 years. Never in my life, my young life, have I experienced just so much. It's definitely a different environment when you are really serving taxpayers and trying to help them comply with tax laws.

Paul Miller: Right. This is a profession that's one of the least desirable professions to enter. It's not a glorified profession. That even puts more of a strain. Less staffing available, more work.

Government has thrust so much compliance on preparers, it's challenging to meet all of their requests at every level. Every month it's something new they're asking for.

They just sent out this new law where Zelle and PayPal, and all these people are now going to start reporting $600 payments. Well, if you're already charging it on a credit card and it's already included in your 1099, then you don't have issue with 1099. Not everybody knows that.

These are the little nuances, but there are many larger nuances. I wouldn't say the system's broken; I just think that everything could be improved, and I don't know why it's not being improved.

When Michael Bloomberg became mayor here and he put 311 in, and it was like, "Why doesn't the IRS have a 311? We need help." Somebody who answers the phone, and who can actually help the individuals and give them a peace of mind when they need it.

Marie Sapirie: Let's try to end on a high note. What aspect of the filing season do you think or hope will go particularly smoothly this year?

Beverly Winstead: I'm always hopeful. And I do want to end on a good note. I do want to say I really appreciate the hard work that the IRS employees actually provide. I just got off the phone earlier today in an appeals hearing with one of my clients and it was actually pretty cordial. The appeals officer was in good spirits.

When I say that it's because a lot of times we're bashing IRS, we're bashing IRS, and I know that they're working hard. Don't get me wrong. I appreciate them really trying.

I just think that they don't have the capacity to do everything that they're tasked with doing. Like the advance child tax credits, I know by statute they had to get the payments out beginning July 15, but Congress really should have held off on that, in my opinion, to allow IRS to focus on processing the returns.

But no, you said, "IRS you got to process the returns. IRS, you got to go back and refund people that overpaid unemployment," or it was tax on unemployment because the law didn't pass for the exclusion until after IRS's systems were up and returns were being filed, so they had to go back and issue those refunds.

They also had to manually look at the earned income tax credit the prior year to make sure that people qualify for the earned income tax credit. Then you had to issue recovery rebate credit. They also had to do the advance child tax credit payment. It was just way too much, way too much.

I do appreciate every IRS employee and their work. Like I said, I've been doing this 15 years, I'm friends with some people in the IRS to the extent you can be friends with people, and I appreciate it.

On a positive note, I will say I think that we all are going to work together and try to deliver the best service. Whether we are practitioners on this side. Whether or not it's an IRS employee. Whether or not it's TAS.

I think the most important thing when we're dealing with anybody is just making sure that in this COVID-19 era, that everyone stays healthy and that we also continue to give each other grace.

Paul Miller: The positive thing about tax season is everybody in the firm always comes together. You pick up the people who are struggling. You ride with the people who are doing really well.

My experience in speaking about the IRS is, I have always felt that the person, the individual, the auditor, the representative on the phone, whoever you're dealing with is a human being, and they've always done what I consider to be their job or an appropriate job.

I'm not saying anybody can't have a bad day, anyone can't be off. You start at the top and say, "We know it's going to be tough, but let's just do the best we can and try to help everybody." My expectations for anyone I get on the phone is, "Can you help me?" Because that's all I'm asking for.

Because all we're trying to do is help clients and provide a service, and they're providing a service to us, and they shouldn't just look at it as that, "I have a job and I'm getting paid 9-5." They should take pride in the job that they do. For the most part, the people I've gotten on the phone, I could say that I've gotten that feeling.

I think in America where everyone is concerned about themselves or worried about themselves, I think it's a team, we're all a team and we need to come together to help each other. That's what I would like. That's what I'm hoping for every day, and I stay eternally optimistic, and that's the vibe that I run for my firm.

Marie Sapirie: Well, thank you so much, Beverly and Paul, for joining the podcast today.

Paul Miller: You're most welcome. Thank you for having me.

Beverly Winstead: Thank you for having us.

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