CPAs Urge IRS Changes to Ease Taxpayer Pain

YOUNGSTOWN, Ohio – Mahoning Valley certified public accountants support a national call to provide relief for taxpayers this tax season, and caution that a failure to do so will mean ongoing delays in resolving abatements, processing returns and receiving refunds.

In the last two years, local CPA firms have seen some clients wait months to over a year for refunds while others have received erroneous automated notices about missing tax filing deadlines. Those notices could result in penalties being incurred by individuals who have filed their returns, but because of a lack of resources and personnel, the IRS hasn’t been able to address it yet.

Pairing a lack of employees and a “less than stellar IT system” with the added duties of administering additional programs like the Paycheck Protection Program or sending out monthly child tax credit payments, has led to an IRS agency that has “struggled to provide the service that’s necessary for the American taxpayer,” says Marc Mazzella, CPA and tax director for Cohen & Co. in Youngstown

“All of that combines to provide us with a situation where the IRS has had a lot of extra mail piling up,” Mazzella says. “They have a lot of extra tax returns that have not been addressed and processed by their agents.”

Phone calls aren’t faring much better. Calling an IRS hotline usually results in one of two things, Mazzella says. Accountants are either on hold for an hour and a half, or receive a so-called “courtesy disconnect,” he says, “which in essence says, ‘We’re hanging up on you.’ ”

IRS customer service representatives – who help taxpayers with tax law questions, account problems and compliance notice responses – answered 32 million of the 282 million calls the agency received last year, according to Taxpayer Advocate Service, an independent organization within the IRS that helps resolve taxpayer issues.

These issues have caused frustrations and stress for taxpayers, says Nicholas Demetrios, principal at HBK CPAs & Consultants in Canfield. One client received several automated notices threatening to put a lien on his house, despite having paid his taxes, Demetrios says.

“Before the IRS could look at our response, they just kept sending letters,” he says.

Others are still trying to resolve tax issues that are two years old, he adds. And while the IRS has been lenient with some issues, the difficulties taxpayers face in getting them resolved has caused its share of anxiety, he says, particularly among business owners who had their businesses shut down during the pandemic and missed tax deadlines and payments.

“It’s not an easy process, especially when you mail [tax filings] into the IRS and you hear things like they have trailers full of unopened mail,” Demetrios says. “It’s not their fault. They’ve just been under incredibly crazy circumstances the last two years.”

“Unless they’ve got an incredible boost to their resources, they’re just going to continue to be bogged down,” he adds.

Taxpayer Advocate Service acknowledges the IRS’ service in 2021 was “horrendous.”

In its Annual Report to Congress published Jan. 12, the organization notes delays in processing responses to IRS notices ran six months or longer compared to the typical 45-day processing time, hindering refunds. Delays also “prompted adverse action by the IRS following up on math error notices and collection notices,” it reports.

As of mid-December, a backlog of more than 35 million unprocessed tax returns included 6.2 million unprocessed Forms 1040 (U.S. Individual Income Tax Return), 2.8 million Forms 941 (Employer’s Quarterly Federal Tax Return), and 2.4 million Forms 1040-X (Amended U.S. Individual Income Tax Return). 

While returns filed electronically tended to fare better than paper returns, Taxpayer Advocate Service reports millions of e-filed returns were added to the backlog “because of discrepancies between the returns and IRS records.” 

The IRS has already indicated taxpayers and tax professionals can expect slow service this year because of how backed up the IRS is, Demetrios says. That will cause frustrations among his clients this year.

Tim Petrey, managing partner of HD Davis CPAs LLC, has relied on Taxpayer Advocate Service when working with clients. In the decade before the pandemic, he used them once or twice, he says. “I’m now using them once a month for simple stuff,” he says.

“I think this tax season is going to be rough in that regard,” Petrey says. “If you had an issue last year, I can almost guarantee you’re going to have an issue this year because they’re just that far behind in updating their records.”

Anything from identity theft issues to simple tax returns will take much longer, he says. For business owners who are already dealing with hiring issues and material shortages, they don’t have the time and energy to deal with tax delays on top of everything, he says.

“I’ve never in my career seen simple refunds get delayed as long as they did,” he says.

In an effort to alleviate these support issues, the American Institute of CPAs suggested a number of actions it argues could be taken immediately by the IRS. AICPA President and CEO Barry Melancon outlined the recommendations in a press release Jan. 10 following a phone call with the Department of the Treasury.

“Today, Treasury officials acknowledged that the upcoming 2021 tax filing season will be ‘frustrating’ for Americans but stopped short of providing any measures they intend to implement to mitigate the expected challenges,” Melancon said in the release. “For more than 18 months, the AICPA has repeatedly and publicly recommended to the IRS that they take reasonable actions that would meaningfully reduce persistent, unnecessary and erroneous notifications and help American taxpayers.”

Those actions include:

  • Halting compliance actions until the IRS can devote the necessary resources for timely resolution of issues
  • Aligning requests for account holds with the time it takes the IRS to process any penalty abatement requests
  • Providing taxpayers with a simplified abatement process
  • Providing taxpayers with targeted relief from underpayment and late payment tax penalties for the 2020 and 2021 tax years

The solutions are “very practical, straightforward stuff” that could be easily implemented by an agency that has shown it can make big changes when needed to make things more streamlined, Petrey says. To not would mean another year of issues that have plagued taxpayers at the local level.

Implementing the changes would alleviate many “menial tasks” and allow the IRS to focus more on revenue-producing items, Petrey explains. The IRS has already alleviated certain tasks by outsourcing work to private collection agencies for individuals who continually owe back taxes.

However, that’s also made it difficult for the taxpayers who have to deal with both to address any issues, “and you cannot get a hold of anyone at the IRS,” he says.

“They need to adapt, and this is our profession’s encouragement to them to adapt,” Petrey says. “Because if they don’t, it’s only going to get worse.”

Implementing the changes would benefit the IRS in dealing with its backlog as well, says Cohen & Co.’s Mazzella.

“If we don’t have to call as much because they implement some of the things that the AICPA is suggesting to implement, and we don’t have to mail as much, it should allow service to slowly catch up at the IRS,” he says.

Mazzella, from Cohen & Co., suggests taxpayers and professionals contact their representatives in the U.S. House of Representatives and encourage them to co-sponsor H.R. 5155, the Taxpayer Penalty Protection Act. The bill was introduced Sept. 3,and “exempts taxpayers from penalties for failure to pay estimated income tax in taxable years beginning in 2020 if such taxpayers (1) paid at least 70% of the tax due for the current year, and (2) paid 70% (90% if adjusted gross income exceeds $150,000) of tax shown on returns for the prior year,” according to Congress.gov.

In the meantime, Mazzella urges patience among taxpayers and professionals as he predicts “a lot of frustrating interactions with the IRS in the short term,” he says. He recommends people call during non-peak hours, like first thing in the morning, and avoid paper as much as possible.

“It’s not going to be as simple as picking up the phone and resolving something in five to 10 minutes,” he says. “The easiest things are going to be difficult and it will be exacerbated because of the current lack of staff that the IRS has.”

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Copyright 2022 The Business Journal, Youngstown, Ohio.