Erin M. Collins took over as National Taxpayer Advocate on March 30, just as the United States was coming to grips with the coronavirus, so it's no surprise that the pandemic and its effects on taxes are part of her first official report to Congress.
"Starting in the midst of a pandemic and witnessing IRS offices closing one by one was not the way I envisioned my role when I accepted the position," wrote Collins in the report's preface.
In conference calls with her leadership team, Taxpayer Advocate Service (TAS) employees and the Internal Revenue Service's COVID-19 response team, Collins said, "I have been extraordinarily impressed by their commitment and focus on the health and safety of all employees during this pandemic, while still doing as much as possible to assist taxpayers."
That type of teamwork is critical to face the continuing tax and pandemic challenges the IRS and TAS face and which Collins highlights in her report, officially titled "FY [Fiscal Year] 2021 Objectives Report To Congress."
COVID-19 also is why a large portion of Collins' initial report examines how usual tax concerns, such as slow refunds and taxpayer service, are being additionally, and adversely, impacted by the pandemic and the ways the IRS has dealt with it.
Pandemic challenges to taxpayers: Collins praised the IRS' decision to postpone more than 300 filing, payment and other time-sensitive deadlines.
She also had kind words for the agency's People First Initiative, created to provide temporary relief from some tax compliance actions, as well as the agency's added task this year of distribution of COVID-19 economic relief payments.
But, and you knew this was coming because pointing out improvement areas is what the National Taxpayer Advocate does, Collins cited what she described as "notable adverse taxpayer impacts." They include:
- Taxpayers who filed a 2019 paper return and are entitled to refunds may be in for a long wait. Since the suspended processing of paper tax returns due to COVID-19 office closures, it's now facing a backlog of 4.7 million paper returns. Even with recent and upcoming IRS office re-openings, Collins notes that it's unclear when it will be able to fully deal with these filings.
- Some taxpayers whose returns were mistakenly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds. (Slow issuance of refunds is a perennial Taxpayer Advocate issue, most recently cited in January.) All tax returns claiming refunds are passed through filters designed to detect identity theft and other types of refund fraud and some of these filters are producing "false positive" rates of more than 50 percent. That means more than half the taxpayers whose returns are stopped by certain filters are entitled to the refunds they claimed.
|"The effects of COVID-19 will continue to be felt for the foreseeable future…. We will continue to identify areas where taxpayers' needs are not being met and will continue to advocate for alternative approaches to meet those needs." — Erin M. Collins, National Taxpayer Advocate|
- Another topic that's always touched on by the Taxpayer Advocate office is the difficulty that taxpayers have in getting help from the IRS. Collins' report is no different. She notes that as part of its pandemic procedures, the IRS shut down its Accounts Management telephone lines, so taxpayers could not reach a live assistor by telephone. It also closed Taxpayer Assistance Centers, making it impossible for taxpayers to obtain in-person assistance. And IRS mail facilities also closed, making it impossible for the agency to log or process taxpayer responses to compliance notices. The only resources readily available were IRS.gov and automated telephone lines. The IRS has begun reopening its operations, but it will take some time before they are restored to full capacity.
- Collins also expressed concern about the way the IRS is dealing with delayed notices. The agency prepared more than 20 million such documents that could not be mailed due to office closures. The IRS is mailing these notices now, but with some collection notices bearing old dates and include response deadlines that often have passed. The IRS plan to include inserts noting new compliance dates will be confusing and concerning to many taxpayers who may not read the inserts, said Collins.
CARES remedy created new challenges: During the country's dealing with the coronavirus, we've repeatedly heard that we can't let the cure be worse than the disease. That was directed at business closures' effects on the economy, but it also can apply to legislative efforts to provide relief to individuals.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, which was enacted on March 27 and, among other things, created the economic impact payments, is a case in point in Collins' report.
The Taxpayer Advocate says that while the IRS generally did a commendable job implementing the CARES Act, taxpayer challenges remain. They include:
- Individuals who did not receive some or all of their economic impact payments (EIPs), also referred to as stimulus amounts, may have to wait until next year to receive them. To date, the IRS has taken the position that most taxpayers who did not receive their full payments must wait until they file their 2020 income tax returns to claim the amounts as credits against their 2020 tax liabilities. Collins says, however, there is no legal constraint on the IRS' ability to issue additional EIP amounts as advance refunds during 2020. She says her office will continue to urge the IRS to provide full EIPs to eligible taxpayers this year as rapidly as possible.
- Employers are struggling to determine whether they qualify for the Employee Retention Credit (ERC) and in what amounts. The ERC is a complex, refundable tax credit and the IRS has provided considerable guidance regarding when and how to claim the ERC. However, several areas require further clarification. If clarity is not provided, taxpayers will be more likely to make unintentional errors, increasing the risk of an audit. TAS will continue to advocate that the IRS further clarify these rules.
- Businesses are facing challenges when seeking to utilize the CARES Act provision that authorizes the use of net operating losses to offset taxable income in prior years, and in some cases to receive refunds. For businesses to determine the optimal application of the CARES Act provisions so they can exercise their right to pay no more than the correct amount of tax, they may need to create and run complex financial models involving multiple tax years. The report says the IRS has provided timely guidance in the form of frequently asked questions (FAQs), but it expresses concern that FAQs are not authoritative or binding on the IRS.
More to come: I know, this is a long post. But Collins has been thorough in her first report as National Taxpayer Advocate.
Her initial message to Congress also deals with how the IRS is handling jobs assigned in connection with the Taxpayer First Act (TFA). That law, enacted last summer, was the most far-reaching revision of our tax system 1998's IRS Restructuring and Reform Act. It also includes 23 provisions recommended by the National Taxpayer Advocate, some of which have, again due to the pandemic, have been detoured.
Since it's a Monday (and I have some personal tasks to take care of today), I'll look at Collin's thoughts on the TFA, as well as her take on what she sees as insufficient responses by the IRS to her predecessor's prior recommendations, in future posts.
If you want a preview of those upcoming posts, as well as more on the COVID-19 tax matters cited in this one, feel free to peruse Collin's full report. It's an invigorating way to kick off a week!
You also might find these items of interest:
- Taxpayer Advocate not taking coronavirus payment cases
- New Taxpayer Advocate tax map guides filers through system's twists and turns
- IRS taxpayer service 'woefully inadequate,' says Taxpayer Advocate Olson in final report to Congress
|Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.
But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.