Headaches and backlogs loom as tax season approaches

WASHINGTON — The third season of tax filing during the coronavirus pandemic is expected to begin soon with more delays, uncertainty and frustration likely for taxpayers and tax preparers.

There will be some signs of business as usual. The personal tax deadline will revert to its usual mid-April date for the first time since 2019, and the Internal Revenue Service has said it is steadily reducing its backlog of 2020 returns and other persistent documents.

Despite this, the agency is still grappling with heaps of messy fiscal year 2020 work while facing new challenges, including the prospect of retroactive legislation and changes to tax laws in the era. pandemic that will require additional attention from taxpayers.

“The IRS is going to start the reporting season in a hole,” said Erin Collins, the national taxpayer lawyer, who heads an independent group within the IRS.

In late December, the IRS said it was on time to open its mail and had processed returns received before April 2021 that did not require special attention or contained errors.

But that means the agency, which had stable budgets before the pandemic, still had 6.3 million unfinished individual returns and 2.3 million amended tax returns to process as of December 18. These amended returns can take the IRS over 20 weeks rather than the usual 16 weeks, the agency said. It reduced its number of returns requiring special handling to 42,000, from 9.8 million in May.

Anything that requires human eyes or hands to the IRS – paper returns, phone calls, and correcting errors on returns – could still be subject to significant delays.

“I don’t even call them anymore,” said Richard Pon, an accountant in San Francisco, who says it’s better to send letters and wait several months for a response, rather than bill clients while he waits. hours to speak with an IRS employee.

At the start of tax season, the breaks created by Congress to help people cope with the disruptions of the pandemic will cause extra work. Child tax credit advance payments received in 2021 must be reflected on tax returns, and people who were eligible for the March economic stimulus payment of $ 1,400 but did not receive it can claim it. on their statements.

The IRS will send notices to taxpayers at the end of January, showing government records on the amount of stimulus and child credit payments in 2021. Discrepancies between these numbers and what is shown on tax returns can cause delays processing when the IRS addresses discrepancies or errors. This process could be especially difficult for households that have added children or experienced significant income changes, said Kathy Pickering, tax director at H&R Block. Inc.

Institute of Taxes.

“Accuracy now has a value,” said Mark Steber, director of tax information at Jackson Hewitt Tax Service Inc., which prepares approximately 2 million returns per year. “You will get your money. there is no doubt. But it may take a few extra weeks or months.

E-filing, using direct deposit, and verifying that children’s credit and stimulus numbers match IRS notices will help taxpayers avoid slowdowns, Collins said.

Employees at IRS paper-processing centers still work under pandemic restrictions, making electronic filing more important, said Douglas O’Donnell, the agency’s deputy commissioner for services and enforcement.

“The pandemic has created unique challenges for the IRS,” he said. “IRS employees continue to work hard to prepare for the upcoming tax season and to process outstanding tax returns. “

The IRS should take some of its new hires, even more qualified auditors, and redirect them to tax bottlenecks, said Nina Olson, Ms Collins’ predecessor, who retired in 2019.

“What they need is to serve the majority of taxpayers who are trying to comply,” she said.

Ms Collins said she is urging the IRS to provide more regular updates on the progress of her processing, so taxpayers who filed in any given week can know if the IRS has started to file. process this batch of statements instead of calling.

Normally, Congress is reluctant to change a previous year’s tax law once tax filing has already started.


Photo:

ELIZABETH FRANTZ / REUTERS

And Congress can still retroactively amend the 2021 tax law. Democrats’ stalled $ 2 trillion education, health and climate change bill would raise the $ 10,000 cap on the national tax deduction. and local to $ 80,000, starting with the 2021 tax returns that people are about to file.

The IRS has not announced when it will begin accepting 2021 tax returns. Due to local holidays, the deadline for most people will be April 18 and April 19 in Maine and Massachusetts. The IRS has extended the deadline in 2020 to July 15 and in 2021 to May 17.

With changes to deadlines and laws, what once seemed like a season is now year round and exhausting, said Henry Grzes, head of tax practice and ethics at AICPA, an organization of accountants. .

“We have to recognize that we are in a world of strangers on so many different levels,” he said. “You just have to roll with what you know and move forward on that basis.”

Tax preparers generally advise people to file their return as soon as possible. Since most people get refunds, depositing earlier allows them to get money earlier. Filing a legitimate return can also help prevent an identity thief from first filing using taxpayer information.

“If you provide information to your tax preparer earlier in the year, he will have more time to think about it and help you,” Pon said.

The potential expansion of tax relief for state and local taxes could give some people a reason to wait to file their returns.

Normally, Congress is reluctant to change the tax law of a previous year after the start of tax filing, given the administrative burden on taxpayers and the IRS. But in March 2021, Congress retroactively lowered income taxes on unemployment benefits received in 2020, and the IRS issued nearly $ 12 million in refunds to people who had previously filed and paid taxes on that income. The agency expects this work to continue until 2022.

The same could happen soon with the state and local tax deduction, where the IRS could start accepting 2021 returns before Congress makes a final decision on what the 2021 tax code is.

“On the one hand, I think it’s great that Congress is trying to help a lot of taxpayers,” Ms. Collins said. “The implementation of this is very painful.

Write to Richard Rubin at [email protected]

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