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Thank you everybody for joining us on this podcast where we will discuss some issues with the IRS, some recommendations that we have. My name is Seth Margolies, I’m a tax partner in the Dallas office of CRI. And we are joined here today with Michael Carter. Michael is the partner in charge of our Tallahassee office. Michael spends most of his time working on governmental and nonprofit tax clients. He’s been with CRI for 15 years and looking forward to him giving us some more information about the IRS. Let’s go ahead and get started. What can you tell us about any… We’re both numbers people. Can you tell us some fun facts about the IRS?
Sure. Seth, it’s funny you mentioned that. As we were preparing for this thing, I just wanted to find out some information about the IRS out of my own curiosity. And so some of the stuff that I found was pretty interesting and some of it was, was mind boggling, to be honest with you. Annually, the IRS process is about 240 million returns that results in $3.5 trillion of tax collected on an annual basis, which about the taxpayers get $736 billion in tax refunds issued. If you look at the irs.gov website, there’s a lot of facts and information out there, but they also talk about on the website, some of the traffic that the website gets. And it’s just amazing how many people access the site throughout the year. Last year alone, irs.gov had 1.6 billion visits and had 437 million files downloaded. I just thought that was an extraordinary amount of traffic online.
I guess if your internet is running a little bit slow, maybe it’s because of all the traffic with the IRS website. Couple of other interesting tidbits, the actual expenditures of the IRS itself, they budget for $12.3 billion to administer the agency. They also have 75,000 full-time employees. And if you think about that for a second, the Super Bowl’s coming up or was last weekend I guess, by the time everyone here’s this podcast. But that’s the same amount of attendance that they’re expected at the Super Bowl. Can you imagine a stadium full of 75,000 IRS employees, Seth? That’s kind of crazy.
I might have to sit out that Super Bowl. But it’s funny that you mentioned the Super Bowl because I can remember a really long time ago, I’m dating myself now, where they were coming out with, I think it was even like a godaddy.com commercial. Where they were kind of putting their website up and they were getting all this traction. And you mentioned 240 million returns being processed, which is just an enormous amount. And I think sometimes, we give the IRS a hard time because we’re waiting on processing refunds, but that is quite a task to be able to have resources to process that many returns. So the tax filing season for 2022 is here, it’s upon us. I know that the past couple years, we’ve had some delays with COVID and even some storms. So what can we expect during the 2022 season that is just around the corner?
Seth, I think it’s more delays. The IRS is behind and they’re not making it very hidden that they are behind. They’re being very public about that fact. Matter of fact, here recently, they published there are millions of returns that are unprocessed from the 2021 tax year. Some of the statistics that I’ve seen show that there’s 6 million individual returns or form 1040s, 2.3 million amended returns, which is a 1040-X where taxpayers are amending their previously filed tax returns for whether it’s an error or just something that they didn’t get picked up on their original return. And then there’s also 2 million quarterly payroll tax returns, such as the 941s and amended 941s. On top of that, there’s still 2020 refunds being processed. So IRS is behind, there’s going to be more delays. As far as the processing goes, I think you can still expect busy phone lines.
Just last year alone, there were 282 million calls filed, logged by the IRS. Of those amounts, only 11% of them reached an IRS representative. That’s just an amazingly poor response rate and causes frustration. Even those who did get through, the average wait time was like 23 minutes. So it’s just, it’s frustrating. If you do have a question, if you do have a problem, it’s hard to get it resolved. And contrary to public belief, tax payers probably believe CPAs. They pay them to do their returns, they pay them to prepare them and handle issues, but we don’t have a hotline with the IRS. As a matter of fact, we have to get a power of attorney from any client that we deal with and we have to have that on file just to speak to the IRS.
So in many cases, it’s even harder for us to speak to the IRS because we are not the taxpayer. So I think with all that being said, the 2022 filing season is going to be difficult, there’s going to be delays. It’s going to be similar to what has happened in the prior years, but it’s getting closer to normal. There’s no extensions due to the pandemic this year. And the filing date is April 18th, which is a little bit different than what people come to think with normal April 15th filing deadline, but that’s because it falls on the weekend and there’s also Emancipation Day. So it’s actually April 18th, which is a Monday.
I agree with everything you’re saying, Michael. I’ve seen it in my own practice and office, I have clients that have filed their returns timely and still waiting on their refunds from their 2020 returns. And I know that with the ERTC credit, we’re amending payroll reports and federal tax returns. And that’s just going to take even longer to be able to process those. And again, as you just mentioned, here we are with the ’22 filing season getting ready to file 2021 returns, and it might cause a little bit more of a backlog. But hopefully, as you mentioned, there have been some recent, hopefully they are starting to catch up, process those returns and the refunds so that we can be able to help our clients file timely and get their refunds timely for 2022. So Michael, we just talked about how the IRS is behind on filing. We’re getting ready to start the filing season and want everything to be timely. Why is the IRS so far behind?
That’s a good question, Seth. There’s a whole bunch of different factors that fall into place here. There’s recent causes, and then there’s also just systemic long term problems with the IRS. As far as the recent issues, the IRS had to shut down in 2020 due to the pandemic. Employees went home, they had to work remotely. Unfortunately, some of the technology didn’t allow them to work remotely. They’re dealing with confidential information. So basically, the IRS was just on hold for a little bit processing returns. I know just from personal experiences, we would try and call to get answers and it just wasn’t going to happen. You couldn’t get through to anybody. I don’t even know if there was anybody there, to be honest with you. So because of those recent shutdowns, they’ve struggled to catch up, they’ve been behind, they’ve just had a backlog of work.
In addition, whenever the government issued some of the COVID relief programs, some of the IRS staff were redirected to help administer those programs, get the stimulus payments out into the public, that kind of thing. So those three things are the primary short-term reasons. On a long-term basis, the agency’s workforce is the same size as it was in 1970, but our population has grown by 60% over that same timeframe. That just means more returns, more workload with basically less people. The workloads up 20% since 2010, but the funding is down 20%. But really, I think a lot of the problem has to do with the lack of automation with the IRS. They’re still receiving a lot of paper returns, and paper returns just take longer to process. They have to be scanned, they have to be transcribed, they have to be manually entered into their internal systems to be able to determine if there’s errors, make checks against W2s, 1099s, that kind of thing to make sure it’s an accurate return. And that just takes time.
I mentioned the lack of automation. Based on what I saw and read online, much of the software at the IRS that they use dates back to the 1960s. And some of the computer language that was used to develop it was COBOL. I remember taking a COBOL programming class back in like 10th and 11th grade, which is for me, 1987. So if that’s the case, it is a pretty outdated system. As a matter of fact, just to keep the system running, most of their IT budget, 90% of it, goes towards maintenance of those old systems. And as long as they’re spending 90% of their IT budget on maintenance, it’s a snowballing effect where they just can’t modernize and get things caught up. We’re all working in a remote mobile electronic environment. And if we’re still processing paper and using COBOL program systems, it’s no surprise that they’re falling a little bit behind.
Michael, now that the IRS knows you have some COBOL experience, they might come knocking on your door to help move things along a little quicker. But I think that… You mentioned earlier that the shutdown in 2020 due to the pandemic, has caused delays. I know that we’ve all seen this in our personal lives, whether it’s construction, remodeling, or ordering things, we’ve seen a delay. And the IRS is no different. They have their own delays, but in this case, we have deadlines, the filing season, and we have to get money from refunds back out to the taxpayer. So again, I hope that things get caught up quickly. So we’re getting ready to file returns for the 2021 tax year. When do you think taxpayers will be able to get their refunds from their 2021 tax returns?
Well, we’re hoping if a tax return is filed timely and it’s filed accurately, it should be done and refunded within a few weeks. Of course, there’s many factors that apply here. But two to three weeks in a very simple, normal environment. There’s returns that have some different types of tax credits, such as the earned income tax credit or the child tax credit, that could cause delays just by virtue of having them and having to process them. With these tax credits being available, it’s viewed as free money by some. And so there may be an urge by some taxpayers to claim those things whenever they don’t deserve them.
So they’ve got to spend some time at the IRS to determine if you’re truly eligible for those tax credits. So that could delay the process by a month or so. As we talked about previously, paper returns, they just extend the processing time, three to four weeks, up to a month sometimes. Returns filed closer to April 15th or April 18th this year, just because of sheer volume, it’s going to extend the processing time. But if there is delays or if there are delays with the processing, there is a silver lining. The IRS will pay you interest for any refunds greater than 45 days. And at 1%, Seth, that’s a pretty hefty bit of income that you’d get back there on any refunds due.
That’s right, Michael. I do think that there will be some delays. I know for the 2020 tax year, we had the stimulus payments that we were accounting for on the tax returns and the IRS had to match up and make sure that those stimulus payments matched up with their system. During 2021, the IRS was sending out checks for the child tax credit, and so that is just one more thing on top of the stimulus at the IRS will have to document and make sure that those payments were made and that taxpayers aren’t doubling up. Which will again, cause some delays. So you mentioned a little bit about e-filing to help get things processed quicker. What can taxpayers do to get their refunds quicker?
Filing electronically is one of the big things. Like we’ve said two or three times now, paper is a killer for the IRS, it just slows things down. I know a lot of people are concerned with personal and confidential information. You hear all the time on the news about whatever company out there having a data breach. And it happens, no doubt about it. But 90% of the taxpayers file electronically. Some may feel like they don’t have access to be able to file electronically. Maybe it’s too costly, whatever. But there are programs out there offered by the IRS, IRS Free File, for eligible taxpayers. Based on my knowledge, taxpayers who have adjusted gross income of less than $73,000 are typically eligible to use the online free service. So that’s available to a lot of the taxpayers out there.
If that’s not an option for you, maybe you aren’t eligible, whatever, there are private online prepare sites like the Turbo Taxes of the world that do offer electronic filing. And then of course, here at CRI, most CPAs file the returns electronically if you are hiring a paid preparer. Second thing that can really help the process move a little bit faster, is using direct deposit. Similar to filing electronically, 90% of the taxpayers do it. For most, it’s either a selection in the tax software that you’re using or your CPA is using, or you make that election on the paper return by including your bank routing number. You submit your returns and magically, that refund shows up in your bank account. Another way to speed up getting that refund, is not to rely on any guesswork. The IRS knows a lot of the facts and figures there, so they check it against your filed return.
So if there is an error, then that return is flagged. The IRS employee has to review it, and it could just delay the whole process by weeks as they figure out what the real answer is. So the bottom line is, always rely on your source documents, your W2s, your 1099s to make sure that the numbers reported on your tax return are as accurate as they can be. A lot of the taxpayers have received stimulus payments and child tax credits, and they get issued a letter basically saying how much those amounts are. Letters 6419 for the child tax credit, letter 6475 for the stimulus money. Make sure that your returns are reporting those amounts accurately. I know that there has been some reports of some errors related to the amounts reported in those letters.
So I would also recommend check the payments that you’ve received against those letters to make sure they’re accurate. Another way to increase the likelihood of getting your refund quicker, is to file early. As soon as you get all of your tax documents, get them to your CPA, start punching them into Turbo Tax or whatever your preferred method of preparing your tax returns is. That way, it avoids any delays near the end of the filing season. Most people wait. So as you get closer to the deadline, the volume goes up. And then finally, probably one of the items that most people probably opt not to do, is to apply your refund to next year’s return. Most people pay into the IRS through their withholdings on their W2 wages. Some people have to have additional amounts taken out of their… Or deposited with the IRS to cover their taxes for the next year. It’s just a simple way to avoid the whole refund process altogether. Just apply it the next year. And that way, you know you’ve paid in the amounts you need to pay.
Michael, everything you talked about that was listed out here are things that we do in our CRI office to help facilitate taxpayers, clients getting their refunds quicker. But as we discussed earlier, the IRS backlog, processing, and things like that, even if you follow all these, it is possible with this filing season, that will be… Still be a delay in getting your refund. So I don’t think taxpayers expecting refunds should be alarmed if it takes more than the two or three weeks mentioned. But again, doing these things that you mentioned will hopefully make the process fast to get a refund. Recently, Michael, has there been any action to assist taxpayers as a result of the publicized delays?
There has been. Just the other day, I got an email from the CEO at the FICPA and they’re closely monitoring the situation, both the FICPA and the AICPA are. And for those who are not CPAs, FICPA is the Florida Institute of Certified Public Accountants and the AICPA is the National Association. The IRS is working hard. They acknowledge the problem and they’re taking all hands on deck mentality. They’ve redeployed a lot of their employees from other projects, such as the administration of the stimulus payments and other pet projects that they might have to really whittle away at the backlog out there.
They’re requiring overtime for a lot of their employees, which a lot of governments don’t like to do. They don’t want to require the overtime and pay the overtime. So they’re doing all that they can to work through it. Recently, they announced… The IRS announced some partial relief. I believe on January 27th, they issued a statement saying they were going to stop certain automated notices for filing errors. I don’t know about you, Seth, but there’s been a lot of situations where you get a tax penalty. The taxpayer brings it to us, we respond with the IRS.
And in the meantime, the taxpayer gets another notice. Well, we’ve already sent in our response. We’ve already discussed it with an IRS representative and it’s been cleared. But unfortunately, because of the backlog, that things are getting crossed in the mail. And this has happened many, many times. So hopefully, by stopping some of these automated notices, it’ll slow down that process and also slow down some of the confusion with the taxpayers. I know that there’s additional calls for action. There’s a Taxpayer Relief coalition, which is made up of members of the AICPA and other accounting and tax repair associations. And they’ve made additional requests to help streamline the process, make things a little bit easier for everybody. Some of the things that they have recommended, is to delay the collection process until those penalty abatement requests are handled, that’ll alleviate some of the confusion and the delays there. Streamline some of the COVID-19 abatements, where there’s any kind of hardships related to the pandemic. Expedite the processing of amended returns.
As we mentioned earlier, there’s 2 million amended returns sitting out there for individuals alone. Let’s get those things cleaned up and processed, and then start working on the next phase of the returns coming in. And then finally, some of the action that they’ve called for, is just providing some tax relief in general. If you paid 70% of your tax due in 2020 and 2021, make it a little bit easier for the taxpayer. Don’t make it so rigorous to avoid any kind of penalties or whatnot throughout the year. So there’s a lot of ideas out there. It’s a big mountain of work to overcome at the IRS. I’m not sure what the additional ideas are from the IRS and what actions they’ll take. But I think with some of these coalitions out there coming up with ideas of how to solve the process, I know the IRS is listening. It’s just a matter of what can they do?
I agree, Michael, there are things they can do. And some of these relief measures that have come out including stopping notices or not putting liens on immediately is a really good step. Because as you mentioned, sometimes CPAs will send information to the IRS and it might take months for them to process but in the meantime, new notices are coming out and just crossing paths. So I think those are some good steps and hopefully, some more will continue to come out.
Well, Michael, thank you for sharing all this valuable information on the IRS and the upcoming filing season. I think it’s… There’s some great tools and recommendations that you mentioned. Again, as I mentioned in one of my other comments to Michael’s readings, that there is a lot that you can do to get that refund process a little quicker. But just know that the IRS is having delays and it might take a little extra longer to get the refund. And if you’re using a paid preparer, please allow additional time for the IRS to process these returns and refunds as they are just now ramping up… As the IRS is just now ramping up, and engaging more professionals to help move through this backlog.
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