By: Sara Jacobi, CPA CEPA
Still waiting for your 2021 Federal tax refund? Tried calling the IRS, only to wait on hold for two hours without talking to anyone? Sent correspondence to the IRS to resolve a notice, only to continue to receive collection notices? If one or more of these items apply to you, unfortunately, you are not alone.
The National Taxpayer Advocate office recently released its 2021 Annual Report to Congress. This report shares insight into the operations of the IRS and the challenges the Service is facing.
Highlights of the 2021 Annual Report to Congress
Highlights from the 234-page report outline lengthy delays in processing paper returns and correspondence, an overwhelming number of telephone calls, and challenges with some of the IRS’ new tools, including the “Where’s My Refund” tool on its website.
As of December 2021, the IRS reports the following backlog (in approximate numbers):
- Six million individual income tax returns (Form 1040) that were paper filed
- Three million amended individual income tax returns
- Two million 941 and 941X (Employer’s Quarterly Federal Tax Returns) – presumably slow to process due to Employee Retention Tax Credits (ERTC’s) claimed on these returns
- Five million items of taxpayer correspondence
Other dismal “highlights” of the report include only approximately 11 percent of callers to the IRS successfully connecting with an agent. For those lucky enough to successfully get through to the IRS, the average wait time was 23 minutes. In 2021, the IRS took an average of 199 days to process the approximately 6.2 million taxpayer responses to notices and proposed assessments. This compares to just 74 average days to respond in 2019.
Finally, the IRS “Where’s My Refund” online tool resulted in nothing but frustration for many taxpayers who were encouraged to use the tool to track the status of their refund. Unfortunately, the tool fails to provide any information that was of use to taxpayers. Taxpayers simply receive a message stating their return processing has been delayed, but no information regarding the reason for the delay, actions the taxpayer could take to expedite the processing, or an estimate of when the return will be processed and the refund expected are provided.
The items above have left both taxpayers and their CPA’s frustrated. Refunds that are needed by certain taxpayers are delayed for seemingly no reason, businesses that could benefit now from the ERTC are having to wait six plus months to receive much needed funds, and notices and collection threats continue even after taxpayers and/or their CPA’s have submitted responses to those notices.
The IRS has certainly felt the challenges of the pandemic, no different than any other business or entity. Already short-staffed prior to the pandemic, the IRS has struggled with agents working remotely, agents who are away from work due to COVID illnesses and other staffing issues. It was noted that the IRS workforce is 17% less today than it was in 2010.
Add to the staffing issues the new legislation brought about by the CARES Act and ARPA. The CARES Act introduced the Employee Retention Tax Credits, among many other things, which in turn led to the flood of 941’s and 941X returns being filed to claim those credits (many of which, as noted above, still are not processed as of today). ARPA expanded the Child Tax Credit, including provision to issue monthly checks in the last half of 2021 to qualifying taxpayers for half of their anticipated 2021 child tax credit. In short, the IRS has had its hands full the last two years.
In addition to the report on the state of the IRS, the National Taxpayer Advocate Office also released its 2022 Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration. Key items called for in this report include:
- Use of scanning technology instead of manually keying information from paper filed returns and correspondence
- Improve taxpayer online tools and allow taxpayers to correspond with the IRS via secure email
- IRS website to include a dashboard report to show delays and performance
- Provide enough funding for the IRS to improve service and modernize systems
Long story short, patience is the key when waiting for refunds and/or dealing with the IRS.
The IRS recently announced it will begin accepting 2021 returns for the 2022 filing season on January 24, 2022. While the IRS is ready to start another filing season, rest assured the challenges from 2021 will linger well into 2022. The American Institute of Certified Public Accountants (AICPA) and other organizations are calling on the IRS to improve, but realistically, until the labor shortage issues can be addressed, these issues will remain.
Your best bet: file all tax returns electronically. Any correspondence that must be sent to the IRS, be sure to send certified mail, return receipt requested. Keep your CPA informed of processing delays, but know that it is likely that a phone call to the IRS placed by your CPA will either not be answered, or not result in any additional information relative to the status of your refund.