In a recent report issued by the National Taxpayer Advocate (NTA) to Congress, the NTA recognized the challenges faced by the IRS during 2021 and indicated that the IRS performed well under the circumstances. Similar to all organizations, the IRS was faced with a reduced workforce and closed offices resulting from COVID-19. Nevertheless, Congress charged the IRS with administering several COVID-19 pandemic relief programs during the filing season, These programs include: 1) the third round of stimulus payment in March of 2021 (also known as Economic Impact Payments); 2) monthly payments of the Advance Child Tax Credit; 3) implementing the provision to reduce of the taxability of unemployment compensation; 4) process tax returns and claims related to the Employee Retention Credit (ERC), and 5) assist the Small Business Administration is developing forms and guidelines for the Paycheck Protection Program loans.
This increased responsibility for the IRS led to significant delays in processing tax returns and refunds for taxpayers. During this period of time, corporate and individual taxpayers filed refund claims related to an expansion of the Net Operating Loss rules, Earned Income Tax Credits, ERC, and stimulus payments. As a result, there IRS saw a significant increase in tax returns to be processed.
In addition to the IRS encountering delays in processing tax returns and refunds, it was difficult for taxpayers to contact the IRS through their customer service lines. According to the NTA’s report, only 11% of calls made to the IRS customer representatives were answered. Also, during this time the IRS online tool titled “Where’s My Fund?” was often nonfunctional and unable to provide guidance for taxpayers.
Taxpayer Solutions – File as Early as Possible
In general, the IRS will process tax returns in the order that they are received. Moreover, tax returns that are filed electronically do not require processing by hand and their related refunds will be expedited. In addition, to efficient processing and turn-around time by the IRS, filing as early as possible does have several benefits that we will discuss below.
Stimulus Credits - As noted above, a significant reason to file early is to receive whatever is due back to you faster. This year, that not only includes refunds, but also any money from the third economic stimulus payment in March 2021 and the Child Tax Credit. While most of the payments were sent out correctly, some taxpayers’ circumstances changed during 2021 or they did not get the entire amount for which they qualified.
Avoid Tax Scammers - Filing your tax return as soon as possible is one of the best ways to guard against tax-related identity theft. In these instances, a criminal files a fraudulent return and collects a refund in your name before you file your return. If you file your legitimate return before a scammer attempts to file one for you, the fraudulent return is rejected. To protect yourself, remember that the IRS will not initiate requests for personal or financial information by email, text, or social media.
Obtain Tax Documents – 1099s, W-2s, and K-1s – Proactively ask financial institutions, employers, and charities for the appropriated documentation. Receiving these items early allows taxpayers to review their information to correct mistakes or any misunderstandings.
In sum, the challenges faced by the IRS during the 2021 tax season are expected to continue. While the IRS is taking steps to ensure a more efficient tax filing season, there are measures that taxpayers can take to minimize these issues.
If you have any questions regarding the information in today's blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.
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