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Regulation and Compliance > Federal Regulation > IRS

IRS Faces Backlog as Tax Season Gets Underway

By Melanie Waddell

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Part of the IRS headquarters building (Photo: Allison Bell/TA) (Photo: Allison Bell/ALM)

Despite the government reopening, “there’s going to be a ramp-up and a backlog” at the Internal Revenue Service as tax season hits full tilt, Edward Karl, vice president of taxation for the American Institute of CPAs, told ThinkAdvisor on Tuesday.

“In a normal year, this time of year is very busy,” and the IRS is “challenged to answer the telephone,” Karl said. The IRS has “been very clear for a number of years that the levels of service are not at the levels they would like to see them. So when you overlay the shutdown and you overlay the new areas vis-a-vis tax reform, then it’s not going to be fixed overnight.”

Indeed, all of the issues the AICPA flagged in a letter to Treasury Secretary Steve Mnuchin and IRS Commissioner Charles Rettig a day before the shutdown ended still stand, Karl said.

The letter, dated Jan. 24, warned that the government shutdown created “problematic issues” for taxpayers.

“The need for unhindered availability of a fair and administrable tax system is rising” as tax season kicks off, wrote Annette Nellen, chair of the AICPA Tax Executive Committee.

Due to the shutdown, Treasury and IRS face “inherent and systemic limitations,” Nellen wrote, offering steps they could take to blunt the negative effects.

CPAs, Nellen said, raised alarms during the shutdown about the “many IRS services and processes that are not functioning, or are not functioning at their normal levels.”

She then listed the following challenges identified by CPAs:

Automated Notices — During the shutdown, IRS continued to mail automated IRS collection notices, automated warnings of asset seizures and Notices of Intent to Levy, as well as automatically transferring cases to collections, with no staff to respond to taxpayers’ attempted replies to resolve the issue or prevent the IRS threatened action from occurring.

IRS Audits and Appeals — IRS suspended all audit, examination and appeals activity (unless the statute of limitations will expire), which means that tax practitioners were unable to communicate with IRS employees during the shutdown to timely resolve taxpayers’ audit issues.

Online Systems and Accounts — Some taxpayers and tax practitioners had difficulty accessing and using online accounts.

Limited Assistance Available — Live telephone customer service assistance for taxpayers and tax practitioners was limited, and IRS walk-in taxpayer assistance centers were closed.

Tax Cuts and Jobs Act (TCJA) Implementation Forms and Guidance Slowdown — Tax practitioners and taxpayers need more guidance from IRS for 2018 tax returns. According to the filing season contingency plan, there were only 346 excepted staff in the Chief Counsel’s office (including 56 excepted because their activities concern the TCJA).

As to automated notices, Karl said they continued to be sent by the IRS during the shutdown. However, “to the extent that taxpayers or their advisors had issues with the notices where they were trying to get someone to intercede [or] to correct some aspect of that notice, or to stop an IRS action there was no one to get through to.”

Since the shutdown, “you have notices that have gone out for the last month and … hopefully people will be answering the phone,” Karl said. “There’s going to be a month’s worth of issues to be resolved, not a day’s worth of issues to be resolved.”

Nellen noted in her letter that “with limited staff working on TCJA implementation, a slowdown in releasing crucial guidance seems likely.”

Many tax forms and instructions, she wrote, “are also still in the ‘draft’ stage and pending approval or remain in a non-submittable format, likely resulting in problems with filing season readiness of tax preparation software.”

Karl told ThinkAdvisor that work on the tax law guidance “couldn’t have been anything but slowed up by the shutdown.”

Nellen suggested that the IRS not only retain more IRS Chief Counsel attorneys for TCJA guidance, but that automatic extensions of notices and collections be extended until 90 days from the shutdown ending date, as well as stop assessing penalties and interest and cease sending automated notices.

Karl also noted the Jan. 15 relief guidance the IRS released regarding underpayment of estimated income taxes by individuals. AICPA sent a letter on Monday to Mnuchin and Rettig  asking that “additional and more extensive relief” be offered to taxpayers who are unable to adjust their withholding and estimated tax payments for the 2018 tax year due to the changes in the tax law.

“We were suggesting … that because of so many new provisions in the tax law, and because it would take so long for the [IRS] guidance to come out, that the IRS should consider abatement of penalties,” Karl said.

Melanie Waddell

@Think_MelanieW

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