IRS processing delays for the 2022 filing season

The IRS has warned taxpayers and practitioners that they are likely to experience a “frustrating season” as a result of pandemic delays, budget cuts and the implementation of COVID-19 legislation. As of late December, the IRS had a backlog of over 10 million returns and 5 million pieces of taxpayer correspondence. Given the current situation, filers should be prepared for additional service delays this year.

In response to pressure from practitioners, professional organizations and members of Congress, the IRS issued a statement on Jan. 27, 2022, indicating it plans to suspend certain automated notices and related actions. For example, it will be suspending notices for taxpayers having received credit for payments with no record of a filed return. The IRS did warn that certain notices are statutorily mandated to be issued within a certain time frame to be legally valid, and congressional action is needed to make changes to these requirements. The IRS also pointed to their outdated technological ecosystem, calling for investment in IRS IT modernization.

While the relief the IRS is providing is appreciated, it is limited and does not address some of the most pressing issues facing taxpayers as they attempt to interact with the IRS. Some of the most urgent taxpayer needs that the IRS has yet to resolve include:

• Discontinuing automated collections until appropriate resources can be devoted for proper and timely resolutions
• Aligning account holds to correspond with the time it takes the IRS to process penalty abatement requests
• Developing a reasonable cause penalty waiver that can be utilized without written correspondence, similar to that used for first-time abatement, without affecting the taxpayer’s ability to use first-time abatement in future
• Delaying collections for filers with active and pending penalty abatement requests until they can be processed
• Proving taxpayers with underpayment penalty relief for 2020 and 2021, including both underpayment and late payment penalties 

These concerns are also outlined in letters from a coalition of 11 vested organizations and another from 191 congressional representatives and 25 senators. None of these concerns seems to be addressed in the current IRS plan to provide meaningful taxpayer relief.

In addition to the backlog of returns and the concerns listed above, contacting the IRS has become an arduous process.

• The IRS is currently only answering 9% of incoming phone calls, and only 3% of those regarding individual income tax returns.
• The time for mail to be opened and written requests to be addressed is running between six and 15 months, on average.
• Practitioners are experiencing similar backlogs, with the IRS taking approximately one month to process and file Power of Attorney forms needed to assist clients.

This lack of responsiveness is leading to escalation of many issues that would previously have been simply and timely resolved. Consequently, the national Taxpayer Advocate Service has been so overwhelmed with requests for assistance, it has announced it will no longer be able to assist taxpayers who are experiencing processing delays for amended income tax returns.

As we await any additional IRS mitigation measures or congressional intervention, we encourage our clients to follow IRS Commissioner Chuck Rettig’s advice for expediting income tax return processing: ensure returns are accurate and complete before filing, file electronically, and use direct deposit and debit to cut down on delays. Additionally, for affected taxpayers, any child tax credit payments and economic impact payments should be properly reconciled with the appropriate full-year credit.

We encourage you to connect with your Baker Tilly advisor regarding how any of the above may affect your tax situation.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.