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CPAs and taxpayers urged to contact elected officials and push for passage of H.R. 5155

Based on multiple media reports, the U.S. Treasury and IRS are preparing for the worst this filing season.

According to a Jan. 10 Washington Post article, the Treasury warned of enormous challenges this tax filing season that will likely delay refunds.

Treasury Department officials told reporters they predict a “frustrating season” for taxpayers and tax preparers due to delays caused by the pandemic, years of budget cuts to the IRS, and federal stimulus measures that have added to the tax agency’s workload.

In a normal year, the IRS starts a new tax filing season with an unaddressed backlog of about 1 million returns. However, Treasury officials admitted the IRS will enter the 2021 filing season facing “several times” that amount, but declined to give a more precise estimate, the Post reported.

A Dec. 23 post on the IRS website said they had 6 million unprocessed individual returns and more than 2 million unprocessed amended tax returns, a separate category. Nearly a month later, they have not updated the numbers.

The IRS watchdog group National Taxpayer Advocate noted the IRS closed last filing season with more than 35 million unprocessed returns — a fourfold increase from the last year before the pandemic.

Besides the backlog of returns, the IRS could not handle an increase in calls for assistance. Only 9 percent of calls were answered by an IRS customer service representative last tax season, while only 3 percent were answered for the 1040 support line for individual income tax returns.

Between a 25 percent workforce reduction, the closure of many in-person centers where paper forms are processed, and the federal response to COVID-19, the agency is overwhelmed.

From stimulus payments to the expanded Child Tax Credit, the IRS was forced to implement new programs it was not designed to handle – and the workload is suffocating.

For taxpayers, the backlog will noticeably affect the 2021 tax return filing season.

Zinner & Co. Managing Partner Robin Baum, CPA“As tax practitioners, we have always prided ourselves on both accuracy and timeliness of service,” said Zinner & Co. Managing Partner Robin Baum, CPA. “We work in a deadline-based business, so it comes with the territory. The backlog that the IRS is currently experiencing is nothing like anything we have ever seen before, and unfortunately, it has had a dramatic impact on our ability to resolve federal tax issues for our clients on a timely basis. In addition, it will have a dramatic impact on the 2021 tax return filing season.”

Baum warns clients this tax season will present multiple challenges for taxpayers and tax practitioners alike.

“We expect to have to extend a much larger percentage of returns that have outstanding unresolved issues from previous tax years,” Baum said. “We want our clients to understand that the timeline for refund requests is going to be very different than it has been in prior years.

“Our hands are tied,” she added.

The American Institute of Certified Public Accountants, along with a large and diverse industry coalition, is pushing Congress and the IRS to act.

On Jan. 14, they submitted a letter to the IRS and Treasury urging immediate action be taken to address the persistent and erroneous notices they continue to send to taxpayers.

The letter discussed how the unprecedented number of unprocessed returns has created a situation where the IRS does not answer the phone and sends numerous mistargeted notices, liens, and levies.

To reduce the need for taxpayers and tax professionals to communicate, the coalition suggested the Treasury and the IRS should:

  • Discontinue automated compliance actions until the IRS is prepared to devote the necessary resources for a proper and timely resolution of the matter (Update: On Feb. 9, the IRS announced it was temporarily suspending certain automated compliance actions. Please read IRS suspends automated collection notices for tax year 2020 for more information.)
  • Align requests for account holds with the time it takes the IRS to process any penalty abatement requests
  • Offer a reasonable cause penalty waiver, similar to the procedures of first time abatement (FTA) administrative waiver, without affecting the taxpayer’s eligibility for FTA in future tax years
  • Provide taxpayers with targeted relief from both the underpayment of estimated tax penalty and the late payment penalty for the 2020 and 2021 tax years

While not the solution to catchup on the backlog of returns, there may be some help on the way for taxpayers regarding targeted relief from underpayment and estimated tax penalty in the form of House Resolution 5155.

H.R. 5155, if passed, will exempt taxpayers from penalties for failure to pay estimated income tax in taxable years beginning in 2020 if such taxpayers paid at least 70 percent of the tax due for the current year, and paid 70 percent (90 percent if adjusted gross income exceeds $150,000) of the tax shown on returns for the prior year.

The resolution, which was introduced on Sept. 3, sits in the House Ways and Means Committee.

Sponsored by Rep. Judy Chu (D-CA), it lacks any co-sponsors or other support.

The AICPA is asking taxpayers and CPAs to take action and tell their U.S. Representative or Senator to support H.R. 5155.

“HR 5155 is an extremely important bill that needs to gain greater momentum in order for taxpayers to receive the relief they need related to IRS correspondence and penalty relief,” Baum added.

Contact your Zinner & Co. Tax Team representative to discuss how this backlog may affect your 2021 tax return.