No one reading this blog and probably very few people in the general populace need to be told that the IRS has experienced significant problems recently processing returns, answering calls and filling vacancies.
While IRS is still digging out, this past November the NTA posted an update on the IRS’s progress working through its backlog, noting that IRS was making progress but that for many taxpayers the delays due to the backlog could make them feel like Groundhog Day
GAO, like TAS, provides a gold mine of data helping understand the scope and status of the IRS’s challenges. This post pulls charts from the recent GAO report entitled “2022 Tax Filing – Backlogs and Ongoing Hiring Challenges Led to Poor Customer Service and Refund Delays.”
The report describes it purpose as follows:
You asked us to assess IRS’s performance during the 2022 filing season. In this report, we assess IRS’s 2022 filing season performance on (1) processing tax returns, (2) providing customer service to taxpayers, and (3) hiring staff to support filing season operations.
In this post we pull out the graphics from the GAO report in order to give you a visual taste of the findings. Read the report if you want the details behind the problems.
read more…
Lost in all the charts is the following way in which the delays have made the application of statutory provisions unreasonable. Many taxpayers leave an overpayment in the system as a credit against the next year’s taxes, but many do not; many want that refund because the cash-flow is important to them. As long as the IRS processes returns promptly, that works out OK, and if the IRS delays more than I think 45 days, the taxpayer gets some interest on the refund, but the point of the arrangement is to encourage the IRS to act promptly, not to give the government a right to force taxpayers to lend to the government. Thus, if the IRS’s delay in sending the refund is many months or more than a year (as one taxpayer has complained to me), then two unfair consequences follow: (1) the taxpayer resents the enforced loan to the government, and (2) at least one taxpayer has told me that he has been advised that he cannot shift gears and direct the government to apply the overpayment as a credit to the current year but is forced to wait in limbo for the refund and pay in full for the current year.
The remedy is for Congress to provide, in addition to the delay in the refund that triggers interest, that if, say, 90 days elapse and a refund has not yet been sent (in the absence of a legitimate challenge to the amount claimed), then from that point until 30 days after the refund is sent, (i) the taxpayer is exempt interest or penalties on any underpayment (so that the taxpayer can manage cash flow without concern as to the IRS dysfunction and unpredictability) and (ii) interest accrues in favor of the taxpayer on the full amount of any current payments (such as good-faith estimated taxes and W-2 withholding). Yes, that hits the government twice (once for interest on the eventual refund and once for the post-90-day cash-flow loss and/or interest cost), but it is a necessary corrective to an agency that simply will not take responsibility and fix itself.
In two years, my son’s request to apply the refund as a credit towards the succeeding year was disregarded, and he was sent a paper check refund. Which would not have been so bad, except that he (and my wife and I) are based overseas, and (because of FATCA) it is difficult and expensive to cash or deposit a check in US dollars.
Same problem here except the paper check was never received. So:
1. IRS disregards the request to apply overpayment to succeeding year;
2. Rather it sends a paper check which gets lost overseas;
3. Disregard of request to apply the overpayment to succeeding year creates a balance due for the succeeding year and also the year after that. So now a problem for THREE (3) tax years.
IRS completely unhelpful in fixing their own error.
To Robert Kantowitz: Your client may have received the same notice CP45 as mine, informing them that “Your 2021 Form 1040 shows that you wanted $15,000 of your overpayment applied to your 2022 estimated tax. We couldn’t apply any of the overpayment as you requested because activity on your 2021 tax account may be delaying the release of the overpayment to your 2022 estimated tax. What you need to do: You can disregard this notice if we applied the credit after we completed the processing of your 2022 tax return. [Note: I think they mean 2021.] If the overpayment is insufficient or not applied, you should adjust your 2022 estimated tax payments to avoid underpayment and possible penalties and interest. If you have questions, call [an 800 number].”
The 2021 return was not filed until mid-October because clients were waiting for a delayed Schedule K-1. How will taxpayers know when 2021 return processing is completed, and how much of the credit-elect was applied to 2022? Your guess is as good as mine.