The Internal Revenue Service entered this tax filing season severely backlogged and shorthanded—the result of decades of underfunding exacerbated by Covid-19 related strains. As of early last month, the agency had 23.5 million tax returns and pieces of correspondence awaiting manual processing, including some paper returns filed as far back as April of 2021. Last filing season, 160 million of 195 million taxpayer calls to the IRS didn’t even get through; only 11 million callers got to talk with an IRS employee while another 24 million callers got automated answers.
Nina E. Olson, a tax lawyer and the founder and executive director of the Center for Taxpayer Rights, describes the current problems at the IRS as the worst she’s ever seen. And she’s seen a lot. From 2001 to 2019, she served as the IRS’ National Taxpayer Advocate—an independent voice within the agency charged with helping individual taxpayers and making recommendations to Congress for change. Before that, she spent years representing clients and running a clinic for low-income taxpayers. The only thing that comes close to the current mess, Olson says, was 1985, when workers at tax return processing centers were struggling with a then new computer system (which is still in use) and fell so far behind that a few famously resorted to hiding returns in closets and in trash bags. “That was the worst to date. And I think this filing season and the last filing season have really shown that it's just far worse (now),’’ she said last week during a conversation for Forbes subscribers.
The good news is that the IRS’ problems won’t affect the majority of taxpayers—they can still file their 2021 1040s electronically and see their expected tax refunds appear in their bank accounts within a few weeks. (As of March 4th, the IRS had issued 38 million tax refunds averaging $3,401 each.)
But tens of millions of other Americans won’t be so lucky. The IRS itself has projected that nearly 21 million electronically filed returns could be delayed this tax season because of discrepancies related to changes Congress made in the refundable child and dependent care credits. That’s on top of millions of other returns that will get kicked out of the IRS’ normal computer processing stream for some other reason—say, a suspected case of identity theft or fraud, a Social Security number that doesn’t match its records or a mismatch related to the 2021 $1,400 per person Economic Impact Payments i.e. stimulus checks.
Olson’s advice is built on her deep understanding of what information is and isn’t available from the IRS and where the worst bottlenecks are—mainly in the agency’s handling of paper, which suffered from Covid-19 shutdowns and restrictions and in the human intensive “error resolution process” which was been overwhelmed by all the Covid relief Congress doled out through the tax code. “Throughout all of 2021, it just never got caught up,’’ Olson says.
What information can’t you get from the IRS? Consider its much advertised “Where’s My Refund?” app. That service can tell you that your return was received, or your refund was approved or that a refund has been sent. But it won’t tell you anything useful between the received and approved phase, Olson warns. It won’t, for example, tell you that your return was kicked out of normal processing for some discrepancy. (That could be why a pitiful 24% of “Where’s My Refund” users who took a survey last year found it helpful—down from 51% in 2019.)
Here’s another piece of Olson advice that’s particularly relevant this season. Back in December and January, the IRS sent a “2021 Total Advance Child Tax Credit (AdvCTC) Payments” statement—also known as a 6419 letter—telling families with children how much in advance 2021 child tax credits the IRS had paid them. (The payments, made monthly in July through December, were supposed to come to half of the benefits due.) What if the IRS number is more than what’s shown in your own records—which could well be the case if, for example, you changed your bank account or moved late last year and the money the IRS thinks you got didn’t actually reach you? The IRS recommends you check online to see if it has a more updated number. And if the numbers still don’t match?
Olson recommends you file your return electronically using what you believe is the correct number. True, your refund will get kicked out of the normal processing stream and go into the error resolution system. And true, last year returns waited an average of 75 days in error resolution purgatory to even be assigned to a human being to work. But the IRS has supposedly programmed its computers to automatically adjust more returns with discrepancies related to stimulus checks and child credits, so the delay shouldn’t be so long this year, Olson says. A key and little understood point, she adds, is you’ll get a refund from the IRS for the lesser amount it thinks you’re due, and eventually receive a “math or clerical” error notice from the IRS explaining why it has reduced your refund.
Why not send in a paper return with an explanation of why your numbers may be different than the ones the IRS has? “Who knows when a paper return is going to be processed?’’ she answers. And then, she adds, when it finally is processed, “probably what will happen is you'll get a math error adjustment eventually on the paper return, they won't have looked at your additional information you sent in, and you'll have to send it in again.” By filing electronically, she explains, you’ll get the part of your refund the IRS agrees with faster, and you’ll also get your chance to dispute the IRS faster.
About those math error notices—they’re really not about a mistaken calculation in most cases. What they are is the IRS using statutory authority Congress has given it to adjust the numbers on your return, without an audit and without contacting you first. The IRS might reduce your refund, say you owe more, or (if you’re lucky) give you a bigger refund. If you disagree, it’s crucial you respond within 60 days asking the IRS to abate the change, Olson says. (She suggests you send your objections and any documentation supporting your case by certified mail, which provides you with a mailing receipt to prove you did this in a timely fashion.) Given the IRS’ own delays—no guarantee it will open your letter quickly—was is the 60 days important?
As Olson’s organization explains in a fact sheet, if you miss the 60-day deadline, you can still call or mail information to the IRS showing why you believe it is wrong. But you’ll lose the right to go to the U.S. Tax Court if the IRS continues to disagree with you, and if the IRS says you owe more money, it may begin trying to collect the tax due while it is still reviewing your documentation.
So who wants to hire a lawyer and go to court? You can file your suit in the U.S. Tax Court without a lawyer (there are instructions on the Tax Court web site for doing so), and without paying any disputed amount first, answers Olson. And if you do file a suit, your case will get kicked to an appeals officer at the IRS. “Tax Court is actually one way to get to that live human being,’’ she explains.
Speaking of live human beings—“I hate to say this,’’ Olson observes, but there are times when you should actually (deep breath) call the IRS. The IRS projects it will answer 35% of calls this season—an improvement but still not great. The point is there are times when reaching a human at the IRS can make a huge difference. For example, if the math error relates to a mistake you made when you entered a Social Security number, a human agent may be able to fix that with you over the phone, Olson says. Or, if it’s a case of suspected identity theft, you may be able to establish you are the legitimate taxpayer over the phone, without having to wait for an appointment at an IRS office. In addition, if your refund has been delayed, but you haven’t gotten a math error notice yet, an agent may be able to tell you what the issue is and maybe help you fix it. (That depends on where your return is in the process.)
What about getting help from Olson’s old domain—the Taxpayer Advocate Service? Olson disagrees with a decision last November by current National Taxpayer Advocate Erin M. Collins to reject cases where the sole issue is the delay in the processing of an original or amended tax return—Collins took that action on the grounds that TAS itself was overwhelmed and that delays at the IRS were so severe that the IRS couldn’t give priority to some returns without slowing down processing of others.
Under pressure from members of Congress, who referred 66,000 cases to TAS last year, six times the annual number before the pandemic, TAS is now taking some cases involving processing delays of amended returns—particularly those, for example, involving employers’ quarterly payroll tax returns claiming the Covid-era Employee Retention Credit. Olson recommends that if a delay at the IRS is causing you financial hardship you both contact your member of Congress and call TAS or fax in a request for TAS assistance (on a Form 911 and yes, the IRS still uses fax machines). There are some issues where TAS is definitely ready to help. For example, if you haven’t gotten your refund because you are the victim of identity theft, TAS will help you get an appointment to get it resolved.
“You’ve got to press on every single lever,’’ says Olson. “I really personally think you should be going to TAS and making them take your case. And I personally think you should go to the members of Congress.” Some constituent cases Congress sends to TAS do get help, she says, and members of Congress “can use that information to force change on a systemic level.” She points out that the just signed $1.5 trillion federal spending bill gives the IRS more money for taxpayer service and takes $75 million from its enforcement kitty to process backlogged returns. The new spending law also grants the IRS authority to speed up hiring of 10,000 new employees—if it can find them. That, of course, won’t be much help to taxpayers waiting now for their delayed refunds and getting no satisfaction from the “Where’s My Refund?” app.