Taxpayers could alleviate the challenges that will continue during this tax season because of the Covid-19 pandemic that tremendously affects tax processing at the Internal Revenue Service. This advice is shared by the IRS, the National Taxpayer Advocate office and tax professionals organizations.
In the National Taxpayer Advocate (NTA) report to Congress – the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate- as required by Internal Revenue Code section 7803(c)(2)(B), the ten (10) most serious problems encountered by taxpayers in 2021, as reported, were:
1. PROCESSING and REFUND DELAYS: Excessive Processing and Refund Delays Harm Taxpayers.
2. IRS RECRUITMENT, HIRING, AND TRAINING: The Lack of Sufficient and Highly Trained Employees Impedes Effective Tax Administration.
3. TELEPHONE AND IN-PERSON SERVICE: Taxpayers Face Significant Challenges Reaching IRS Representatives Due to Longstanding Deficiencies and Pandemic Complications.
4. TRANSPARENCY AND CLARITY: The IRS Lacks Proactive Transparency and Fails to Provide Timely, Accurate, and Clear Information.
5. FILING SEASON DELAYS: Millions of Taxpayers Experienced Difficulties and Challenges in the 2021 Filing Season.
6. ONLINE ACCOUNTS: IRS Online Accounts Do Not Have Sufficient Functionality and Integration with Existing Tools to Meet the Needs of Taxpayers and Practitioners.
7. DIGITAL COMMUNICATIONS: Digital Communication Tools Are Too Limited, Making Communication with the IRS Unnecessarily Difficult.
8. E-FILING BARRIERS: Electronic Filing Barriers Increase Taxpayer Burden, Cause Processing Delays, and Waste IRS Resources.
9. CORRESPONDENCE AUDITS: Low-Income Taxpayers Encounter Communication Barriers That Hinder Audit Resolution, Leading to Increased Burdens and Downstream Consequences for Taxpayers, the IRS, TAS, and the Tax Court.
10. COLLECTION: IRS Collection Policies and Procedures Negatively Impact Low-Income Taxpayers.
As of mid-November, there were: 1) 5.9 million unprocessed individual returns (Form 1040); 2) 2.4 million unprocessed (Form 941) business returns; 3) 2.7 million unprocessed amended individual returns (Form 1040-X); 4) 402,000 unprocessed amended (Form 941-X) business returns; and 5) approximately 5 million pieces of general taxpayer correspondence.
There will be challenges during this tax season. Tax professional organizations have submitted proposals to the Internal Revenue Service to reduce those concerns. However, taxpayers could also participate in making the season less stressful.
- The IRS has been mailing Letter 6419 to parents who received advance tax child credit payments in 2021 and Letter 6475 related to the economic impact payment to help taxpayers claim the 2021 recovery rebate credit. Taxpayers should keep the letters with their tax records and provide a copy to their tax preparer to help fill out their return. Any discrepancy in the amount reported will cause delay in processing because the returns will be put aside for manual processing later.
- 529 distributions for student loan repayments over $10,000 are taxable to the extent of the excess and are subject to a 10% penalty. The 529 savings plans are not just for college or graduate school because they could also help pay for elementary and secondary education. The state tax treatment of distributions from 529 plans for K-12 education does not always follow federal law.
- Businesses with forgiven Paycheck Protection Program loans must report them. The forgiven loans are not taxable, but they still need to be reported to the Internal Revenue Service.
- Thieves who use stolen taxpayer identification numbers on fraudulent returns to seek improper refunds generally file the false returns early in the filing season to allow the IRS to receive them before legitimate taxpayers file their returns. E-filing your return early, if possible, helps protect yourself from tax-related identity theft. If you file early, your return will likely arrive at Internal Revenue Service before a fake return does.
- Make sure to use your new identify theft PIN if you were a victim of identity theft.
- Make sure your tax return and signed and dated.
- Employers get more time to report worker health coverage for 2021. Businesses with 50 or more full-time-equivalent employees use Form 1095-C to report 2021 insurance data for each full-timer to both IRS and the worker. They must also file Form 1094-C with IRS, which requires additional information. This year, the 1095-C is due to employees by March 2 in lieu of January 31. The deadline for submitting the 1095-C and 1094-C to Internal Revenue Service is February 28. The deadline is March 31 for e-filing.
- Ensure you have all your tax documents before you file because the IRS received the same forms. Any missing form causes delay in processing.
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