In Mid-March, right as the 2020 tax filing season was in full swing, the IRS began closing offices and return processing centers in response to COVID 19. While the Internal Revenue Service rushed to enable many employees to resume work from their homes, the mail began piling up with no way to process it. Limited processing center personnel were allowed to resume work in some locations in June 2020 while others remained closed based on state stay at home orders until later in the year. This means that a skeleton crew was now responsible for the 11 million pieces of unopened mail that arrived during the initial stages of pandemic quarantine protocols, with an additional million pieces of mail coming in each week.
Throughout the remainder of 2020 taxpayers and tax professionals alike have been frustrated by the ongoing delays in resolving correspondence and the processing of tax returns. IRS phone lines are overwhelmed by individuals looking for updates on their 2019 refunds and the problems seem to be getting worse not better. By January 5, 2021 the IRS stated they had 5 million pieces of unopened mail with at least half of those being returns. On January 21, 2021 Commissioner Rettig stated that all the mail was caught up and that they are “processing” new returns as they come in. The tax professional community is not seeing that, and it waits to be seen whether the IRS can get back to normal processing timeframes in the near future. In the past the IRS could be reasonably expected to process a paper filed return within 8-12 weeks; with millions of tax returns, many dating back to the July 15th filing deadline, still in the processing “pipeline” the IRS says that time frames have been extended an additional 8 weeks for a total of 16-20 weeks.
During the pandemic crisis the Taxpayer Advocate has been overwhelmed by an increasing number of cases, mostly related to tax return filing and 2019 refund delays which are being given a top priority to unsure vulnerable taxpayers receive the funds they need. When it comes to 2019 refunds there are two main issues facing taxpayers.
- 2019 tax returns filed on paper and not yet processed
- 2019 returns with a Pre-Refund Wage Verification Hold
In fact, the Taxpayer Advocate is so overwhelmed that in January 2021 they issued memos limiting acceptance of future cases. As of January 19th the Advocate will no longer take cases related to unprocessed returns (original & amended), even when economic hardship is present, if there is no confirmation of the return on IRS systems. This means that if transcripts are not showing return receipt the Advocate will no longer take on the case, citing their inability to meaningfully advocate on behalf of the taxpayer in this instance. Reading between the lines it is easy to infer that the delays in processing tax returns has likely created an environment where it is impossible for the advocate to track down the millions of returns in the processing “pipeline” or receive adequate communication from the IRS.
In this same memo Advocates were instructed to provide the following guidance to the taxpayers inquiring on non-processing of a return.
- If the return was filed at least 4 weeks prior to July 15, 2020 and there is no indication of receipt they are instructing taxpayers (and tax professionals) to refile the return. If after 90 days there is no progress the advocate can then consider opening a case to assist.
- If the return was filed after this timeframe then they are instructing taxpayers (and tax professionals) to wait and under NO circumstances should they file another copy of the return.
These dates are subject to revision based on updates to the IRS Operations During COVID-19: Mission-critical functions continue | Internal Revenue Service page found at https://irs.gov. This memo is depressingly consistent with IRS messaging, essentially there is very little to be done except wait for them to catch up. This message becomes even more depressing as we head into the 2021 filing season when the IRS will again be inundated with tax returns and refund requests while grappling with tax law changes related to the CARES Act.
On January 25th the Advocate also advised that they would not be taking on any issues related to Pre-Refund Verification Holds for 2020 returns until after the April 15th filing deadline. Even then we can expect them to require taxpayers to abide by normal IRS response dates from receipt of requested information before taking on the case. The problem? Both the Advocate and the IRS are still struggling to resolve stalled 2019 refunds with the goal of issuing them sometime in 2021. Some experts are predicting that some taxpayers may not receive their 2019 refunds until next year depending on the complexity of issues to be resolved. The IRS problem with mail is not confined to unprocessed original returns; the IRS uses the mail to request all manner of documents to verify tax return information prior to processing. This mail must first be opened then forwarded to relevant departments for review and processing. As the entire IRS is overwhelmed with work this is no easy feat and the delays are bleeding into many areas of IRS operations.
Unfortunately, this leaves tax professionals with very few options to resolve outstanding 2019 tax issues and we can reasonably expect the dysfunction to continue into the current filing season. With this rocky road ahead, we have some advice for tax professionals:
- Continue monitoring account transcripts for return pending or secured coding.
- If you need to refile a return, consider e-filing instead of paper filing when possible.
- If the IRS is requesting additional information to process a return, consider faxing it, if that is an option, to ensure it goes straight to the relevant department instead of being caught in the mail processing centers. The notice will include a fax number if that is an option.
- IRS is now able to accept e-filed amended returns in addition to recent original returns, throughout this filing season continue to encourage and use e-filing when possible.
Unfortunately, the current situation is bleak, we can only hope that the IRS can get this under control before we get too much further into 2021. In the meantime, keep calm, carry on, and monitor your client’s transcripts for updates.