It’s no secret that the backlog of tax returns to be processed by the IRS has swelled over the past year, despite efforts to clear the pileup. As of May 31, 2022, there were 21.3 million unprocessed paper returns. This reality is crushing the IRS, its employees, and most importantly the taxpayers.
Is the IRS okay?
On April 7, 2022, IRS Commissioner Chuck Rettig stated the IRS answered about 20% of phone calls compared to the usual 70%. This decline is to be expected, as the agency received more than four times the normal call volume from January 1 to March 17. The IRS usually begins the filing season with approximately 1 million tax returns from the previous year unprocessed. The 2021 filing season was behind before it even started, with 2.7 million unprocessed returns from calendar year 2021 as of March 31.
Budget cuts, employment drops, and workload increases can sum up the past 10 years for the IRS until recently. The budget declined by 17% from 2010 to 2018. Full-time equivalent employees dropped 36% from 1989 to 2018 (Tax Policy Center, 2020). The number of returns filed annually has been steadily rising for the past 20 years with 130,965,000 filed for 2001 and 169,098,000 for 2020. On March 21 2022, the IRS destroyed approximately 30 million of the unprocessed information returns because of “antiquated technology.” While the returns destroyed were informational, these returns are cross-referenced in post-processing compliance matches to ensure accuracy of other returns.
What does this mean for the taxpayer?
It was never easy to get in touch with the IRS before the backlog caused by the pandemic, but more tools have been established to aid in the process. With a slight increase in the budget over the past few years, the IRS is still trying to recover from the effects of COVID-19. Despite the IRS getting less than half of the increase in budget requested for the 2022 fiscal year, the spending bill signed in March provided the largest funding increase in decades. The agency’s budget cuts over the past 10 years and backlog from the past two years has shown the need for innovation. In Strategic Plan for 2018-2022, the IRS highlights five online tools that did not exist in 2010, including direct pay, online account, interactive tax assistant, IRS2GO mobile app, and “Where’s My Amended Return?” tool.
As a taxpayer, what resources are available to avoid any phone calls to the IRS and minimize frustration? Electronically filing tax returns is the simplest way to avoid frustration. If you are expecting a refund, electronic filing will get your money into your account faster than paper filing. More than 90% of individuals e-file their returns, so this may not pose an issue for the individual. However, business and informational returns can still cause additional strain to the taxpayer if paper filed. With the backlog in returns paper-filed, it may be over a year before the taxpayer receives a notice stating they need to verify information or owe additional taxes. Therefore, electronic filing is generally the best solution. Your CPA can set up your payment and estimated payments for automatic withdrawal when your return is e-filed. It costs the IRS less money and manpower to process an electronic return rather than a paper return, which will most likely result in a quicker turnaround.
Setting up an Online Account
If you do not already have an IRS Online Account, signing up is free and easy to do through www.irs.gov.
- Once you get to the homepage, click “Sign in to Your Account” under the “How can we help you?” section. Then, click the blue button labeled “Sign in to your Online Account.” If you have never created an IRS account, then you will select to Create an ID.me account.
- Enter your email and create a password. A message will appear informing you that whatever identity verification you use to create the account will be shared with the IRS to track prior sign ins, assist with multi-factor authentication, and the status of your verification.
- An email will be sent to your account, and you will need to log in to your email and click verify. The screen you were previously on will change, and you can select the options to set up multi-factor authentication, which you will be asked to confirm it is working. Select Continue.
- You will have two options to verify your identity using biometrics. You have the option to choose self-service or video chat with an agent. Self Service is the preferred method since all you will need is State ID or passport and a picture of yourself. You will accept the terms and conditions of biometric data usage.
- You can upload pictures of your ID through your device or have a link sent to your smartphone to take the pictures. Once submitted, it may take a minute to upload the images.
- Next, you will take a picture of your face. You will be prompted on your device to return to your browser where you should be asked to enter your social security number.
- Confirm the information from your ID is correct. If not, it may be changed -for example, if you moved and haven’t had your ID reprinted with the correct address. To change something, simply select no, change, and submit.
- You will be prompted once more to allow the IRS to use this information to determine your identity.
- Finally, you will be taken to your new online account.
Creating this account is the doorway to fast and accurate access to your tax data, which has many perks in the long run. The Online Account provides the taxpayer access to view key data from the most recent tax return. This key data includes the taxpayer’s adjusted gross income, transcripts, economic impact payments, advanced child tax credits, and notices from the IRS. A taxpayer can adjust communication preferences for certain notices and set email notifications for new account activity. Going paperless may be beneficial for taxpayers who travel or would like information faster. While a taxpayer can make a payment online without signing into an account, having an account enables one to also view five years of payment history and any pending or scheduled payments.
In addition to other features, the taxpayer can also grant authorization to a tax professional through the account. Power of Attorney and Tax Information Authorizations can be approved and electronically signed as well. Additionally, the tax professionals are also able to ensure their records are up to date and cut down time spent on payment confirmations with the client if given authorization.
Regarding notices from the IRS, the majority of the notices received are automatically generated and sent building on the backlog. Additionally, the IRS does not have time to process the response to the first notice before another automatically generated follow-up notice is sent out. This can be frustrating for sure and adds to the negative impression of the IRS. In 2021, the agency sent out tens of millions of notices to taxpayers. Having an Online Account with the IRS reduces the chances of being blindsided by a discrepancy notice or penalties if a payment did not go through. The tax law provisions from the CARES Act have increased the number of amended returns the IRS has to process as well. The IRS responded to the backlog on February 9, 2022 by putting a temporary hold on automated collection notices, unfiled tax return notices, and balance due notices. No specific date was set for these notices to resume, but rather the agency stated it would last until the existing backlog is worked through giving taxpayers and their tax preparers some peace of mind.
Reducing the Risk of Scams
Scammers prey on vulnerability, which is why tax scams are so common. No one wants to hear from the IRS because it is rarely good news. which is why a sense of panic can take over. The thought of getting the bill paid before more interest and penalties accrue may push a taxpayer to click the link, give information to prove their identity, or pay over phone. Perhaps the most important fact to remember is the IRS will never initiate contact by email, telephone, text message, or social media. A phone call may be made only after the IRS has sent a notice to the taxpayer already. This is an example of when an online account would be useful, as the taxpayer can hang up and check to see if there have been any notices issued when they access the online account.
An individual’s tax return contains very sensitive data including social security numbers, banking information, investment accounts, home addresses, and phone numbers, making it a scammer’s gold mine. Thieves will often file a tax return in someone else’s name in an attempt to get a refund. Even if one’s tax information has not been compromised, data breaches of personal information are increasing in frequency and magnitude, which is why taxpayers should be proactive in protecting their information.
In the past, the IRS has issued Identity Protection Personal Identification Numbers (IP PINs) to aid victims of identity theft. An IP PIN is a six-digit number assigned by the IRS to the taxpayer. The assigned IP PIN must be included on electronic and paper filed tax returns. In 2021, the IRS opened the program to all taxpayers featuring an opt-in approach. In order to opt in to the program, a taxpayer may use the Get an IP PIN tool on the IRS website. To complete the process, a taxpayer will need a valid social security number and access to a phone. The taxpayer must be able to verify their identity online or by phone. Only a taxpayer can request an IP PIN as the IRS has prohibited tax professionals from requesting them on the taxpayer’s behalf. An IP PIN is valid for one calendar year, and a taxpayer must obtain a new one every year. An IP PIN should not be shared with anyone except a trusted tax preparer. Applying for an IP PIN may seem excessive, but if a fraudulent return is submitted in your name, the delays on refunds can extend over several years.
Get Prepared for 2022 Filing Season Now
The IRS was not immune to the many setbacks COVID-19 caused. However, taxpayers can find simple solutions to many questions using online tools provided by the IRS. Setting up an online account with the IRS gives a taxpayer clarity on their taxes. One can apply and schedule payments, adjust communication preferences, and review transcripts, giving the taxpayer a sense of control. The ability to review notices cuts down on the confusion of automated duplicates and scams. Protect your identity, your time, your money, and your sanity from dealing with the IRS via telephone by getting an online account, and give your tax professional access to the account. Also, consider setting up an IP PIN.
Content provided by LBMC tax professionals, Sabrina Boyte and Shelby Follis.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.