By: Rick Spires, CPA
The IRS is facing a massive backlog of unprocessed returns due to pandemic stresses, new programs like the child tax credit, years of inadequate funding and widespread staff shortages within the agency. Together, it adds up to long waits for refunds or service when taxpayers need help. The best solution? Plan for delays and be patient when they inevitably happen.
The deadline for filing 2021 many types of tax returns is April 18, 2022, however, it is best not to wait. As always, early preparation and timely filing are imperative for taxpayers, but those actions may not be enough to ensure a smooth process this year.
Where’s my refund?
A refund that seems to be stuck in processing limbo forever often elicits concerns of errors, IRS challenges to the information reported or another problem. That may be the case, but this year it’s just as likely (if not more so) that the return is simply caught in the deluge of returns waiting their turn.
Unfortunately, the “Where’s My Refund” tool that allows taxpayers to learn when they can expect an anticipated refund is no help in many cases. When refunds are delayed, the tool cannot explain the reason for the delay. Taxpayers in this situation cannot find out what they should do next or even where their return has gotten hung up in the process.
Calling the IRS to find out what’s going on isn’t likely to help either. National Taxpayer Advocate Erin Collins provides updates on the agency and its ongoing work to Congress each year. In her January 2021 Capitol appearance, she shared the fact that calls to the IRS from taxpayers seeking guidance went unanswered 8 out of 9 times. But, if a taxpayer does reach a customer service representative to ask about an expected refund, the CSR often has no more access to information than the tool provides.
A growing problem
The volume and variety of IRS activity makes instant responses virtually impossible under the best of circumstances, but the agency’s current processing times represent a big jump from its historic performance. The average time to process taxpayer responses to a tax adjustment proposed by the agency grew 169% in just two years, jumping from 74 days in fiscal 2019 to 199 days in 2021.
Just how far behind is the agency? In December 2021:
- The IRS had 6 million original returns from individuals waiting to be processed
- 2.3 million amended individual returns and 2 million employer returns (Forms 941 and 941X) had been filed but not yet processed
- 5 million pieces of taxpayer correspondence were awaiting a response
That unresponsiveness can create major headaches. After the IRS has sent a notice of deficiency or request for additional information, taxpayers have a limited window in which to submit an appropriate response. If the response goes unprocessed, the system may then generate automatic actions based on the faulty premise that the taxpayer neither complied with nor contested the IRS’ original request. The perceived lack of response by taxpayers can trigger fines, penalties or other negative consequences such as withholding of tax refunds.
With customer service in high demand and millions of action items awaiting attention, what can taxpayers do? Not much, really. Given the trying circumstances, patience and planning are the best strategies to avoid frustration and limit negative financial consequences.
- File as early as possible. Sooner is better for taxpayers who anticipate a refund. Returns are typically processed in the order received, so filing early can reduce the waiting time.
- Doublecheck returns. Verify that all income is included and numbers are correct before submitting the return, to minimize IRS challenges and prevent amended returns.
- Expect delays. To avoid cashflow crunches, take care that neither personal nor business financial plans rely on anticipated tax returns to meet short-term needs.
- Keep records. Save all IRS correspondence and be sure your CPA has a copy: stimulus check and child tax information, Identity Protection PIN, and all other communications.
Remember to keep your advisor in the loop. Communication is key; your CPA can help you prevent and resolve problems more effectively if they’re consistently aware of your changing circumstances. Reach out to your Mauldin & Jenkins tax professional any time with questions, concerns or just to check-in and discuss smart strategies to strengthen your financial position.