The separation between the official view of IRS performance and that of taxpayers and taxes … [+]
Is the IRS Broken? It depends who you ask. Treasury Secretary Janet Yellen tweeted yesterday: “It’s an amazing accomplishment. In the midst of a crisis, the IRS has established a master class on how to implement and operate the machinery of government. “The backlash from tax professionals has been immediate and vehement.
Brian Streig, CPA and Director of Taxes at Calhoun, Thomson & Matza, LLP in Austin, Texas, responded, “Yes, the IRS has done an excellent job implementing the CARES Act and other changes to Covid’s tax law. But the IRS has utterly failed American taxpayers in their primary function of handling tax returns, issuing refunds, and handling communications. “
Tax professionals were quick to spot the backlog of 29 million unprocessed paper-filed returns and the fact that while lagging behind in processing the mail, the IRS continues to send taxpayers notices of violations of the items requested by their tax professionals to file or Reply by email or fax and they remain unprocessed. In other words, the replies to new messages are in a pile of unprocessed mail and faxes that were sent long before the new message was published.
Dan Herron, CPA and Principal of Better Business Financial Services, Inc. of San Luis Obispo, Calif. Stated, “I have customers who haven’t received a refund in 2019. Last month the “Where’s my refund?” To the IRS still processing the returns. This month the IRS claims it has no record of it. What should the taxpayer do now? “
What in fact? The IRS requires tax professionals to have permissions (Forms 8821 or 2848) on their central authorization file (also known as the CAF entity) in order to receive tax information. According to the Internal Revenue Manual, such approvals should be processed within three to five business days. Before Covid-19, processing times routinely averaged 14 days. Processing times are currently between six and ten weeks. Often times, the deadline for a tax professional to respond to a client’s communication will have passed before the IRS is able to process the approvals the tax professional needs to process the case.
The permissions are also required to access transcript information such as refunds issued, returns processed, and wage and income information that has been reported to the IRS. For example, many tax professionals mentioned the problems that arose when the IRS removed reporting for the first two rounds of economic impact payments from the Get My Payment tool when the third round started processing. Taxpayers and tax professionals relied on the Get My Payment tool to validate the receipt and amounts from the first two payment rounds for comparison with clients’ income tax returns for 2020, as taxpayers often did not keep their payment letters. Without the Get My Payment tool and without the required permissions, taxpayers or tax professionals cannot access information about the first two rounds of economic impact payments.
Due to the delays in processing permits by the CAF units, tax professionals working on relatively urgent matters must call the IRS with the permits in place and, if lucky enough to have their call answered, fax the permit to the representative and hope the IRS computers are working and will not be disconnected until they have a chance to discuss the case. Of course, even on the practitioner’s priority line, the likelihood of answering a call is lottery-like. More often, the tax advisor receives a “courtesy break” and has to try again (and again) at another point in time.
Matt Smith, CPA of Manhattan Beach, Calif., Says, “When you review Secretary Yellen’s statement yesterday, it becomes clear that many see the IRS no longer as the primary role of the IRS as managing inflows (taxes). Instead, there is a growing perspective that the main role of the IRS is to manage outflows (from government programs). “Statements like Matt’s raise the question of whether the IRS is really the right organization to manage these benefits. Wouldn’t the social security agency (or some other organization) be a more appropriate choice? Because despite recent claims to the contrary by Secretary Yellen and Commissioner Rettig, the IRS stepped on the water long before the pandemic began, and the 2021 filing season is not going smoothly.
Is the IRS Really Broken? Probably not. At least not irreparably. The cracks in the dam, however, will continue to widen unless Congress recognizes and addresses their continued role in the problem by not consistently providing adequate funding for long-term infrastructure projects to the IRS and continuing to act as the service administrator rather than the accounts receivable division of the IRS Country, and by repeatedly failing to anticipate how their decisions will actually affect the IRS, taxpayers and tax professionals sought to contain the deluge.