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COVID-19

New Taxpayer Advocate Delivers First Report to Congress Mid-Pandemic

In addition to coping with the COVID-19 crisis and implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, both the IRS and taxpayers face challenges relating to the Taxpayer First Act ...

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National Taxpayer Advocate (NTA) Erin M. Collins, who assumed the position leading the Taxpayer Advocate Service (TAS) in early spring, has just delivered her first report to Congress (IR-2020-132, 6/29/20). The new NTA was immediately immersed in a tumultuous time for the IRS and the country. In addition to coping with the COVID-19 crisis and implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, both the IRS and taxpayers face challenges relating to the Taxpayer First Act (TFA), the 2019 tax filing season and other administrative matters.

“On March 30, 2020, I had the honor and privilege of being sworn in as the third National Taxpayer Advocate,” wrote Collins. “Starting in the midst of a pandemic and witnessing IRS offices closing one by one was not the way I envisioned my role when I accepted the position, . . . but there also has been a silver lining in this experience: As I have participated in conference calls with members of my leadership team, TAS employees, and the IRS’s COVID-19 response team, I have been extraordinarily impressed by their commitment and focus on the health and safety of all employees during this pandemic, while still doing as much as possible to assist taxpayers.”

Here are some of the highlights of Collins’ initial report to Congress.

COVID-19 pandemic issues: The report praises the IRS for acting quickly to postpone over 300 filing, payment and other time-sensitive deadlines, provide broad relief from compliance actions under its “People First Initiative” and disburse some 160 million stimulus payments authorized by the CARES Act.. However, the report says that, despite the IRS’ best efforts, there have been notable negative impacts, including the following:

  • Taxpayers who filed a 2019 paper return and are entitled to refunds may be in for a long wait. The IRS suspended the processing of paper tax returns. As of May 16, it estimated it had a backlog of 4.7 million paper returns. Although the tax collection agency is reopening some of its core operations, it’s not clear when it can open and process all the returns sitting in mail facilities.
  • Some taxpayers whose returns were mistakenly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds. As TAS has documented, some of these filters produce “false positive rates” of more than 50 percent (meaning that more than half the taxpayers whose returns are stopped by certain filters are entitled to the refunds they claimed).
  •  Many taxpayers who have needed help from the IRS have had difficulty obtaining it. The IRS shut down its Accounts Management telephone lines, so taxpayers could not reach live assistance by telephone. The IRS also closed its Taxpayer Assistance Centers, making it impossible for taxpayers to obtain in-person assistance. And the IRS shut down its mail facilities, so it was unable to log or process taxpayer responses to compliance notices.
  •  IRS systems prepared over 20 million notices during the pandemic that could not be mailed due to closure of notice production centers between April 8 and May 31. These notices are being mailed now. However, some collection notices bear old dates and include response deadlines that have already passed. Although the IRS plans to send notices about postponed due dates, taxpayers may be confused.

CARES ACT: The report concludes that the IRS generally did a commendable job implementing the CARES Act, but problems remain, including the following:

  • To date, the IRS has said that most taxpayers who didn’t receive their full stimulus payments must wait until they file their 2020 income tax returns to claim the amounts as credits against their 2020 tax liability. Note: There is no legal constraint on the IRS’s ability to issue additional stimulus payment amounts as advance refunds during 2020.
  • Congress enacted the CARES Act both to provide emergency financial relief to taxpayers on an individual level and to boost spending on the national level. TAS will continue to urge the IRS to provide full payments to eligible taxpayers throughout 2020 as fast as possible. The report says that making taxpayers wait until next year to receive their payments harms the affected taxpayers and is inconsistent with congressional intent.
  • Employers are struggling to determine whether they qualify for the Employee Retention Credit (ERC) and in what amounts. The ERC is a complex, refundable tax credit with a number of moving parts. The NTA continues to advocate for more clarity from the IRS.
  • The CARES Act authorizes use of net operating losses (NOLs) to offset taxable income in prior years (and, in some cases, to receive refunds). For businesses to determine the optimal application of the CARES Act provisions so they can exercise their right to pay no more than the correct amount of tax, they may need to create and run complex financial models involving multiple tax years. The report notes the IRS has provided timely guidance through frequently asked questions (FAQs), but it expresses concern that the FAQs aren’t authoritative or binding on the IRS.

Taxpayer First Act: This legislation, enacted one year ago, constitutes the most far-reaching revisions to tax administration since 1998. The new law included some 23 provisions recommended by the NTA. Notably, it requires the IRS develop four strategic plans. This comprehensive taxpayer service strategy was supposed to be sent to Congress by July 1, 2020 but has been delayed. In her report, Collins voices concerns about the failure to establish a single point of contact for identity theft victims and other issues that still must be addressed.

Tax filing season: Typically, the NTA’s mid-year report includes an assessment of the filing season measuring performance against the results of prior filing seasons. Because the IRS closed most of its operations in March and postponed many filing and payment deadlines from April 15 to July 15, this filing season can’t be fairly compared with prior years. The disruption caused by COVID-19 and the postponed due date has had—and continues to have—an enormous impact on the 2020 filing season. This is reflected in the number of returns received, the volume of correspondence received from taxpayers and reducing toll-free telephone service.

Due to the IRS’ limitations and the postponed filing deadline, an assessment of the filing season is incomplete. The report says TAS may provide a more thorough analysis later.

Other issues: Beyond the aspects discussed above, TAS continues to advocate on a broad range of matters. The report describes ten aspects it plans to focus on during the upcoming fiscal year. This includes working with the IRS to provide taxpayers with limited English proficiency meaningful access to tax products and services; improving the clarity and content of IRS notices and correspondence; improving service to and communication with taxpayers in rural and other communities that lack high-speed internet access; and working with the IRS to refine its screening filters so fewer legitimate returns are flagged as potentially fraudulent and cause refund delays for affected taxpayers.

For more information, you can find the NTA’s complete report at. https://taxpayeradvocate.irs.gov/ObjectivesReport2021.