National Taxpayer Advocate Report Foreshadows a Challenging 2022 Tax Filing Season
The National Taxpayer Advocate, an independent organization within the IRS that helps taxpayers liaison with the IRS, recently released its Annual Report to Congress. This report includes the 10 most serious problems encountered by taxpayers, and administrative and legislative recommendations to help mitigate those problems.
National Taxpayer Advocate Findings for 2021
For 2021, the report outlined the following challenges faced by the IRS:
- Processing backlogs led to long refund delays. Paper returns took at least eight months to process, and as of December 2021, the IRS reported it had a backlog of 6.2 million unprocessed Forms 1040, U.S Individual Income Tax Return, and 2.4 million unprocessed Forms 1040-X, Amended U.S. Individual Income Tax Return. It is taking the IRS anywhere from 20 weeks to more than a year to process amended returns.
Businesses that filed Form 941, Employer’s Quarterly Federal Tax Return, or Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, are also seeing delays, as the IRS still has more than 2 million unprocessed Forms 941 and about 427,000 Forms 941-X that cannot be processed until the related Forms 941 are processed. Many of the Forms 941-X are requesting refunds for COVID-19-related employment tax credits such as the Employee Retention Credit.
- Telephone service was the worst it has ever been and the IRS’ “Where’s My Refund?” tool often was not helpful. In 2021, the IRS received about 282 million telephone calls, but IRS representatives answered only about 32 million, or 11 percent, of those calls, with an average hold time of 23 minutes.
The IRS encouraged taxpayers to instead use an online tool to check the status of a refund, but the system often generated responses that could not explain status delays or provide more information. As such, taxpayers often reverted to calling the IRS to get this information.
- The IRS took months to process taxpayer responses to its notices, further delaying refunds and in some cases leading to premature collection notices. The IRS sent tens of millions of notices to taxpayers in 2021, including 14 million math error notices, Automated Underreporter notices (where an amount reported on a tax return did not match the corresponding amount reported to the IRS on a Form 1099 or other information reporting document), notices requesting a taxpayer authenticate their identity for returns flagged as potentially fraudulent, correspondence notices, and collection notices.
The normal processing time for these notices, which often require a response from the taxpayer, should be 45 days. However, in 2021, processing time has been taking six months or longer, which in some cases is leading to refund delays. In other cases, taxpayers must respond in writing, but due to the significant paper backlog at the IRS, this caused refunds to be delayed even longer or caused the IRS’ automated processes to take adverse action against the taxpayer, like moving a case to collections.
According to the National Taxpayer Advocate, many of these issues stem from a lack of resources. As such, the report recommends Congress authorize more funding for the IRS to provide additional technology resources and hire more employees.
How Does This Affect You?
These issues are likely to rollover and continue in 2022. The IRS has announced that the filing season for 2021 tax year returns will begin on Monday, January 24. For most taxpayers, the tax filing deadline is April 18, 2022. Taxpayers who file for an extension will have until October 17, 2022, to file their returns. If your return is one of those still in processing, you generally will not need to wait for your 2020 return to be fully processed to file your 2021 tax returns and can file when you are ready.
There are several things you can do to help prevent process delays for your tax return:
- Gather all your tax documents and get them to your tax advisor. Organize and gather your 2021 tax records and share them with your accountant as soon as possible.
- File electronically and choose direct deposit. The IRS expects most taxpayers will receive their refund within 21 days when they file electronically if they choose direct deposit and there are no issues with their tax return.
- Report accurately and completely. Errors, missing information, incomplete returns, or suspected identity theft or fraud may result in processing delays for returns filed electronically or on paper, as those returns may need manual review. The IRS uses systems to match information from information returns to what is reported on the tax return, so it is important that what goes on your tax return matches the IRS record.
- Watch for IRS letters about advance Child Tax Credit payments and third economic impact payments and pass them on to your tax advisor. If you received the advance Child Tax Credit payments in 2021, look for a letter from the IRS (Letter 6419) with the amount of your Child Tax Credit or verify the credit amount in this portal on the IRS website. Note, married taxpayers who filed a joint return for the tax year the IRS used to calculate the advance payments will receive two letters from the IRS (one addressed to the taxpayer and the other addressed to the spouse). Each letter will report half of the advance payments, so these amounts should be combined when calculating the total advance payments received. See this Taxpayer Advocate Service Tax Tip for additional information.
If you received the third round of economic stimulus payments authorized by Congress in March 2021, you should receive Letter 6475, Your Third Economic Impact Payment, sometime in January. You also can check the amount of your stimulus on the IRS website using the “Your Online Account” feature.
If you’re eligible for either of those payments but did not receive them, you can claim the credit on your 2021 tax return—but make sure the amounts on those letters or in the online portals match what you put on your tax return, since errors can cause processing and refund delays.
As you navigate the coming tax filing season, contact your BKD Trusted Advisor™ or submit the Contact Us form below if you have any questions.