The American Institute of Certified Public Accountants (AICPA) wrote a letter to Commissioner Rettig and Assistant Secretary for Tax Policy Lily Batchelder on July 11, 2022, making several requests related to the difficulties at the IRS resulting from the pandemic which has translated into difficulties for taxpayers and their representatives. The letter makes reasonable requests that deserve attention and that can be addressed through administrative action rather than legislation.
The AICPA letter did appropriately acknowledge at the outset the difficult circumstances the IRS has faced since the pandemic before making a series of discreet steps that could assist the system.
First, it recommended that the IRS become more transparent about the status of its operations. Describing current IRS communications on the backlogs that exist the letter provides:
Much of the information provided to the public by the IRS regarding the progress on processing returns can be found at “IRS Operations During COVID-19: Mission-critical functions continue,” which provides some updates on a weekly basis. Other portions have not been updated in months, in some cases even years. The information provided is vague, particularly when describing the length of time taxpayers can expect for processing of returns and responses to taxpayers’ communications.
The letter also notes that there is a weekly news announcement but the announcement is not easy to find and provides only surface details.
In place of the current information flow the AICPA letter recommends: 1) increasing the level of detail on returns processed; 2) providing regular information on the status of processed mail; 3) providing expected times for IRS responses to taxpayers and practitioners regarding correspondence; and 4) providing regular, widely publicized updates on getting back to pre-pandemic inventory levels.
The same problem of communication has existed at the Tax Court as it has tried to manage a surge in inventory. Agencies (and Courts) struggle to provide practitioners and taxpayers information when they are working hard to dig out from a pile of work but providing information on the scope of the problems and the anticipated time frames is how to manage expectations. Without regular and substantial information, practitioners cannot keep clients informed. Operating in the dark creates much unhappiness. Telling everyone what’s happening doesn’t necessarily make people happy but it creates understanding and more sympathy for the problem.
Second, the AICPA letter recommends continued use of the surge teams to address high volume areas and to process tax returns. I doubt this recommendation is very controversial. I imagine the IRS will continue to do this but there are consequences on the enforcement side if it must use enforcement resources in order to populate the surge teams.
Third, it recommends continued suspension of certain automated compliance actions. The letter suggests that the IRS wait to restart these actions until it is able to respond to taxpayer replies. I am sure there is pressure within the IRS to restart these compliance actions but I agree with the letter that restarting them without a plan for responding in a reasonable time to the requests these actions will necessarily generate is a bad idea. The system must take a hit on efficient collection until it can right itself.
Fourth, the letter wants a streamlined provision for reasonable cause penalty requests and it wants this provision for waiving penalties to not impact the current administrative penalty waiver provision of first time abatement. Basically, the AICPA wants it to become much easier to eliminate penalties until we all get back to normal after the pandemic. While I don’t have a problem with the suggestion, I see the IRS balking at this one since it would require it to set up a new administrative penalty waiver system parallel to first time abatement and one with an indeterminate end date. It makes sense to create as much penalty relief as possible during the unprecedented times created by COVID which have not only upended the IRS but individuals and businesses as well.
It will be interesting to see if the IRS reacts to this letter and if the other organizations, such as the Tax Section of the ABA and the National Association of Enrolled Agents, write calling for similar relief. The IRS granted a significant amount of relief in 2020. Two years later it still struggles to get back on its feet just as many taxpayers struggle. The ideas put forward by the AICPA represent a logical mechanism for helping both the IRS and the people it serves.