Is the IRS broken? It depends on whom you ask. Yesterday Treasury Secretary Janet Yellen tweeted “It’s a stunning achievement. In the midst of a crisis, the IRS has put on a masterclass in implementation and how the machinery of government should work.” The pushback from tax industry professionals was immediate and vehement.
Brian Streig, CPA and Tax Director at Calhoun, Thomson & Matza, LLP in Austin, Texas, responded “Yes, the IRS did a great job at implementing CARES Act and other Covid tax law changes. But, the IRS has completely failed American taxpayers in their primary function of processing tax returns, issuing refunds, and handling notices.”
Tax professionals were quick to note the backlog of 29 million unprocessed paper filed returns and the fact that the IRS, despite being so woefully behind in processing the mail, continues to send taxpayers notices of non-compliance concerning items that their tax professionals were required to file or respond to by mail or fax and that remain unprocessed. In other words, the answers to new notices are sitting in a pile of unprocessed mail and faxes sent well before the new notice was issued.
Dan Herron, CPA and principal of Better Business Financial Services, Inc. in San Luis Obispo, California, noted “I have clients who still haven’t received 2019 refunds. Last month the Where’s My Refund tool said the IRS was still processing the returns. This month, the IRS claims they have no record of it. What is the taxpayer supposed to do now?”
What indeed? The IRS requires tax professionals to have authorizations (Forms 8821 or 2848) on file with their Central Authorization File (also known as the CAF unit) in order to obtain taxpayer information. According the Internal Revenue Manual, such authorizations should be processed in three to five business days. Before Covid-19 processing times routinely averaged 14 days. Right now processing times range from six to ten weeks. Often the deadline for a tax professional to respond to a client’s notice has passed before the IRS manages to process the authorizations necessary for the tax professional to work the case.
The authorizations are also necessary 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 issues created when the IRS took reporting for the first two rounds of Economic Impact Payments off of the Get My Payment tool when the third round began being processed. Taxpayers and tax professionals were relying on the Get My Payment tool to validate the receipt and amounts of the first two rounds of payments for reconciliation on clients’ 2020 income tax returns because often taxpayers did not keep their payment letters. Without the Get My Payment tool and absent the necessary authorizations, taxpayers and tax professionals, respectively, cannot access information on the first two rounds of Economic Impact Payments.
The delays in authorization processing by the CAF units means that tax professionals working on relatively urgent matters must call the IRS with the authorizations in hand and, if they are lucky enough to have their call answered, fax the authorization to the representative and hope that the IRS computers are working and that they don’t get disconnected before having the opportunity to discuss the case. Of course the odds of getting a call answered, even on the practitioner priority line, are lotteryesque. More often the tax professional gets a “courtesy disconnect” and must try again (and again and again) at another time.
Matt Smith, a CPA in Manhattan Beach, California, says “Thinking through Secretary Yellen’s statement yesterday, it’s becoming quite clear that many no longer view the primary role of the IRS as administering inflows (of taxes). Instead, there’s a growing perspective that the IRS’s primary role is to administer outflows (of government programs).” Statements like Matt’s beg the question of is the IRS really the proper organization to be administering these benefits? Wouldn’t the Social Security Administration (or another organization) be a more appropriate choice? Because despite Secretary Yellen’s and Commissioner Rettig’s recent assertions to the contrary, the IRS has simply been treading water since well before the pandemic started and the 2021 filing season is not going smoothly.
Is the IRS really broken? Probably not. At least not irreparably so. But the cracks in the dam will continue to widen unless Congress recognizes and addresses their continuing role in the problem by not consistently providing adequate funding to the IRS for long-term infrastructure projects, by continuing to use the IRS as a benefits administrator rather than as the country’s accounts receivable department, and by repeatedly failing to reckon with how their decisions actually affect the IRS, taxpayers, and the tax professionals caught trying to hold back the deluge.