The launch of income tax filing season this week comes as taxpayers are already feeling frustration and even despair with the IRS over unprocessed prior-year returns and unanswered correspondence, representatives of a broad coalition of organizations including the AICPA said Tuesday.
More than a dozen representatives of the coalition, Tax Professionals United for Taxpayer Relief, spoke to reporters by Zoom about how their members’ tribulations reflect those of their tax clients. They agreed that the current tax preparation season may well be plagued with administrative issues further compounding taxpayers’ difficulties.
The news conference follows up on the coalition’s Jan. 14 letter to IRS Commissioner Charles Rettig and members of Congress urging specific relief measures (see prior coverage). The coalition includes 12 professional organizations, firms, and other stakeholders besides the AICPA, representing a broadly diverse cross section of tax professionals and millions of individuals and entities, including Latino and Black taxpayers, small businesses, and low-income taxpayers.
The coalition members are the AICPA, Latino Tax Pros, National Association of Black Accountants, National Association of Enrolled Agents, National Association of Tax Professionals (NATP), National Conference of CPA Practitioners, National Society of Accountants, National Society of Black Certified Public Accountants (NSBCPA), National Society of Tax Professionals (NSTP), Padgett Business Services, the Diverse Organization of Firms, H&R Block, and Prosperity Now.
The group recommends that the IRS:
- Discontinue automated compliance actions until the IRS is prepared to devote the necessary resources for a proper and timely resolution of the matter;
- Align requests for account holds with the time it takes the IRS to process any penalty abatement requests;
- Offer a reasonable-cause penalty waiver, similar to the procedures of a first-time abatement (FTA) administrative waiver, without affecting the taxpayer’s eligibility for FTA in future tax years; and
- Provide taxpayers with targeted relief from both the underpayment-of-estimated-tax penalty and the late-payment penalty for the 2020 and 2021 tax years.
Regarding the reasonable-cause penalty waiver recommendation, Ben Deneka, program manager for agency and industry relations at H&R Block, agreed that reasonable cause is typically a facts-and-circumstances consideration but said one overriding circumstance should be taken into consideration.
“That definition of ‘reasonable cause’ may need to be reexamined by the IRS to determine what exactly is reasonable in today’s environment, as opposed to three years ago,” Deneka said.
Another panelist, Roger Harris, president and COO of Padgett Business Services, agreed that the COVID-19 pandemic has often created events beyond taxpayers’ control.
“There are so many situations during this pandemic where reasonable cause is almost a given,” Harris said.
Going forward, confusion may well ensue over the treatment on 2021 returns of the advance child tax credit, said Larry Gray, CPA, government relations liaison with the NATP. A portion of 50 million Letters 6419, 2021 Total Advance Child Tax Credit Payments, which report to taxpayers the aggregate amount of advance child tax credit payments they received during the year, were sent out Dec. 14, a day before the final payment was issued, and so may underreport the true total. Some may contain other errors, especially where parents alternate child custody arrangements year by year. Resulting errors on returns will delay processing of returns.
“We’re creating a bigger backlog going into this season, and who’s responsible for that?” Gray asked.
Other participants told of clients who had been negatively affected by an existing IRS processing backlog that as of late December included 6 million original individual returns; 2.3 million amended returns; 1.1 million Forms 941, Employer’s Quarterly Federal Tax Return (as of Jan. 19); and 5 million pieces of taxpayer correspondence.
One such client’s tale was related by Nina Tross, executive director of the NSTP. The client had an offer in compromise (OIC) with the IRS, but the Service failed to process one of the client’s payments, which caused the OIC to be “kicked out.” Then, because the IRS believed there to have been no communication from that taxpayer, it initiated proceedings to have her passport revoked per Sec. 7345. The tax professional then had to work to reinstate the OIC and lift the passport revocation.
“And all of this without having really any one single point of contact,” Tross said.
A “perfect storm” of such dislocations afflicts Black, brown, Asian, and other minority communities across the nation, said Jina Etienne, CPA, CGMA, chair, board of directors of the NSBCPA. Lower-income taxpayers are more likely to be gig workers and independent contractors and consequently have more complex returns. Many are unbanked and thus cannot use direct deposit, and many self-prepare their returns and lack access to e-filing, she noted.
The four measures the coalition recommends are needed for those reasons, Etienne said, and because existing relief provisions are inherently complex and require assistance and support that may also be beyond such taxpayers’ reach.
Each member of the coalition has separately approached the IRS seeking relief, said Melanie Lauridsen, AICPA senior manager–Tax Policy & Advocacy. So far, however, the IRS has not addressed the recommendations. Lauridsen said she understands the IRS’s argument that it does not want habitual abusers of the tax system to game the system.
“But right now, given the circumstances of the pandemic, if there was ever a time to give relief to taxpayers, this is it,” Lauridsen said.
And even if, as she said the IRS has argued, most penalties are small, “it’s the inability to communicate with the IRS” that distresses taxpayers, she said. “And that creates a sense of despair within the taxpayers.”