In an already unprecedented year, the IRS is taking an unprecedented approach toward managing taxpayer expectations, and with good reason: with tax season officially beginning this coming January 24th, the IRS is dealing with a severe lack of staffing — facing workforce headcounts at 1970s levels — and a backlog of tax returns from the past two years. They say to expect frustration this tax season.

The IRS has been dealing with budget shortages for many years now, and Covid forced their mailrooms to close down for months at a time, creating a massive backlog from which they have not yet recovered. Add to that the unbelievable number of new demands placed upon the agency: three rounds of stimulus payments, Employee Retention Credits for both 2020 and 2021, and demands for guidance in an unbelievable number of groundbreaking areas of code… it is certainly understandable that they would not be able to meet taxpayer needs.

So what can taxpayers do to avoid additional problems? Filing electronically with direct deposit, and avoiding a paper tax return — at almost any cost — is more important than ever this year. Additionally, those who received an Economic Impact Payment or an advance Child Tax Credit last year should be especially careful to order an IRS transcript ahead-of-time to confirm these amounts before filing a return. (We are requiring all clients to submit both federal and state transcripts this year, in their own interest.)

Also, keep in mind that by law, the IRS cannot issue a refund involving the Earned Income Tax Credit or Additional Child Tax Credit before mid-February, though eligible people may file their returns beginning on January 24. The law provides this additional time to help the IRS stop fraudulent refunds from being issued.  

Due to the Emancipation Day holiday falling on Friday, April 15th, the filing deadline to submit 2021 tax returns or an extension to file is Monday, April 18, 2022. Taxpayers requesting an extension will have until Monday, Oct. 17, 2022, to file (but not an extension to pay; make sure to pay an estimate of tax with your extension).

The IRS did note that if you are still awaiting processing of your 2020 tax return, this should not prevent you from filing a 2021 return — but as a CPA, I’d recommend against that approach, opting instead to file an extension with a payment of any estimated tax due; otherwise, changes from 2020 could affect 2021 and require an amended return.

The American Institute of CPA’s VP of Tax, Ed Karl, has repeatedly shared in AICPA Town Halls and articles that the IRS Commissioner himself testified that during busy season the IRS gets 1500 calls per second — this translates into their only being able to answer 2% of calls. “No, that is not a typo.” The AICPA strongly supports penalty relief measures that are fair, reasonable and practical, and would mitigate the negative effect of the coronavirus on taxpayers and require less contact with the IRS. Such an approach would alleviate the daily struggles that taxpayers, their advisers and the IRS face. Specifically, the AICPA urges Treasury and the IRS to:

• Stop compliance actions until the IRS is prepared to devote the necessary resources for a proper and timely resolution of erroneous notices, missing refunds and other matters. At a minimum, stop automatic collections at least for 90 days after the filing deadline.
• Align requests for account holds with the time it takes the IRS to process any penalty abatement requests.
• Provide taxpayers with targeted relief from underpayment of estimated tax penalty and the late payment penalty.
• Offer a COVID-19 reasonable cause relief, similar to the procedures of first-time abatement and generally facilitate the easier adoption of reasonable cause relief.

Those are some solid suggestions for short-term relief — long-term suggestions and more can be found in this excellent AICPA summary. On Friday, the AICPA joined a coalition seeking relief from IRS service challenges, pointing out that “though the pandemic has created unforeseen and prolonged problems for the IRS, taxpayers, and tax professionals, the IRS has not taken reasonable actions to reduce burdens that appear likely to continue into the upcoming tax filing season”.

In the meantime, here are several important dates from Tax Practice Advisor that taxpayers should keep in mind for this year’s filing season:

• January 14: IRS Free File opens. Taxpayers can begin filing returns through IRS Free File partners; tax returns will be transmitted to the IRS starting January 24. Many tax software companies also are accepting tax filings in advance.
• January 18: Due date for tax year 2021 fourth-quarter estimated tax payments. 
• January 24: IRS begins 2022 tax season. Individual 2021 tax returns begin being accepted and processing begins.
• January 28: Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people – including the option to use prior-year income to qualify.
• April 18: Due date to file 2021 tax return or request extension and pay tax owed.
• April 19: Due date to file 2021 tax return or request extension and pay tax owed for those who live in MA or ME due to Patriots’ Day holiday.
• October 17: Due date to file for those requesting an extension on their 2021 tax returns.

Best of luck — and please remember to be kind and patient with your tax preparer and agency representatives. We’re all human beings struggling with an imperfect system during a difficult time.

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