With a new year comes new opportunities — including the opportunity to once again fork over your money to the IRS. While that’s never a pleasant experience, for taxpayers who need to take advantage of the rumored “Service” aspect of “Internal Revenue Service,” it could be even more unpleasant than usual.
Even before the filing season begins on January 24, the IRS is already behind. That’s because as of the end of 2021, the IRS still has not processed six million returns from tax year 2020. It still has 2.3 million amended returns to get through (which are taking upwards of 20 weeks to resolve), and victims of identity theft are waiting an average of 260 days for resolution.
The IRS’s sluggishness is in part due to the pandemic, but last year brought with it unique challenges as well. For the 2019 tax year, the IRS sent 700,000 notices claiming a math error on the part of the taxpayer, allowing them to accept the IRS’s “correction” or contact the IRS to resolve the issue. Last year, that number was up to 13 million. Taxpayers attempting to call to dispute the “correction” had their call answered between 9 and 19 percent of the time.
Making all this delay even more obnoxious is how rigidly the IRS expectstaxpayers to adhere to deadlines. The IRS is currently embroiled in a legal battle over its claim that a taxpayer forfeited his rights to challenge a penalty assessment by filing a Tax Court petition one day late. Just imagine how prompt the IRS would be if it had to pay back any taxes received from returns that weren’t processed in time.
Another time bomb set to go off is eligibility for advance tax credit payments. The American Rescue Plan Act, passed back in March of last year, expanded the Child Tax Credit and automatically enrolled taxpayers who were eligible for the credit based on previous years’ tax information in a program of advance payments.
However, taxpayers’ eligibility for the credit can change from year to year for a number of reasons, and many taxpayers likely received this credit in error — and, consequently, will be expected to pay back any wrongly disbursed funds when they file their taxes this year. Taxpayers could opt out of advance payments, but doing so required a lengthy process of identity verification, requiring the disclosure of personal information to a private company that the IRS has contracted with.
This is the state of the IRS as it has attempted to pressure Congress to give it funding to take on entirely new responsibilities and tasks. As former Taxpayer Advocate Nina Olson points out, the Build Back Better (BBB) Act would do very little to resolve these issues, with most funding the IRS would receive going to new means of enforcement.
A major sticking point over BBB funding has been the proposal to require financial institutions to report gross inflows and outflows from many accounts. The proposed threshold has shifted over time, but many millions of Americans would have their account information turned over to the IRS under each proposal. What’s more, the IRS could easily use any data on gross inflows and outflows it deems “suspicious” to demand more detailed information from taxpayers.
In short, taxpayers would be left with an IRS that has new ways to claim that taxpayers aren’t paying enough, and basically the same dearth of resources by which to file taxes correctly and resolve disputes. Taxpayers need to remind Congress that the IRS’s mission is twofold, and that taxpayer service cannot be an afterthought.
