Four tips for working with a tax office with limited resources – Tax authorities

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Federal tax professionals working to resolve issues with the IRS can attest to the multifaceted impacts of agency resource constraints on taxpayer service. The signs are evident, for example, in long wait times to respond to calls, delays in processing tax returns, and increased cases of penalties levied against compliant taxpayers. Perhaps most frustratingly, IRS reviews that could have been resolved in cooperation with a properly staffed agency became unnecessarily protracted and, in some cases, contentious.

The optimists among us see that the process of reform to address these issues began with a slow refund from the IRS. However, it could take years of IRS hiring and training for the organization to handle all of its responsibilities. What do we do while waiting?

Here are some suggested best practices for dealing with IRS in today’s environment.

  1. Keep a close eye on your IRS accounts

    The last IRS filing season has been tough. Even some taxpayers who filed electronically have since discovered that their returns were incorrectly recorded in the IRS system, resulting in incorrect taxable income or net operating loss carryforwards. IRS input errors can have significant negative consequences for compliant taxpayers. For taxpayers who have remitted the correct amount of income tax (that’s to say, the income tax liability reported on their return), an IRS input error that results in a higher recorded income tax liability could result in an incorrect assessment of late payment penalties. Worse still, if the IRS’ input error results in lower recorded income tax, the IRS may refund a taxpayer’s “excess” payment. If the taxpayer inadvertently accepts the refund (for example, by depositing the refund check), the IRS will assess underpayment interest from the day it sent the refund until the day the taxpayer repaid it. IRS input errors can also negatively impact taxpayers who have overpaid their current year tax payable and elected to have the excess amount credited to the next tax year. . If the entry error increases the taxpayer’s tax liability for the current year, the IRS will credit a lower amount, potentially triggering late payment penalties the following year. Errors that start with an IRS input error and end with penalties and interest can be caught early by taxpayers who actively monitor their IRS accounts. Specifically, taxpayers who establish access to IRS electronic services through the IRS website are able to track most activity on their tax accounts, confirm that the IRS has accurately recorded their returns of income and to ensure that the IRS has not sent any erroneous refund checks. Tax advisors can also easily monitor their clients’ tax accounts with a completed Form 2848, Power of Attorney.

  2. Monitor the status of your IRS correspondence

    It usually takes months for the IRS to respond to taxpayer correspondence. The IRS is also slow in processing amended tax returns, including amended returns that flag a refund claim. Due to processing delays, the office of the National Taxpayer Advocate recently announced that it has “made the difficult decision to suspend acceptance of cases where the only issue is processing amended returns until the IRS be able to deal with its backlog”.1 The IRS also struggles to keep up or is simply unable to respond to many taxpayer communications.2 Generally, if the IRS has not responded to a taxpayer within eight to ten weeks of initial contact, the taxpayer should follow up with a phone call to the IRS to determine if the IRS is taking action. to solve the taxpayer’s problem. IRS call center representatives can often see notes on the taxpayer’s account that clarify the actions (if any) taken by the IRS. While taxpayers can attempt this follow-up call to the IRS themselves, their tax advisors will likely have more effective channels of communication through the IRS Practitioner Priority Service hotline, which is not available only to designated taxpayer representatives.

  3. Avoid paper communications with the IRS whenever possible
    The IRS’ ongoing battle with its paper backlog has been in the headlines since the pandemic began. However, despite its efforts to hire and retain employees, the IRS continues to struggle – now promising in a very optimistic announcement that the backlog will be clear “by the end of calendar year 2022”.3 Although no form of communication from the IRS is fast or easy at this time, the IRS generally processes electronic communications, such as electronic documents and faxes, much faster than paper communications. Therefore, taxpayers should consider electronic methods of communicating with the IRS whenever possible. If the IRS offers electronic filing of any tax form, whether through an IRS-approved third-party electronic file provider or via simple fax submission, taxpayers should consider taking advantage of these transmissions. simple electronics. Not only does the IRS process electronically filed tax forms faster than paper returns, but it also generally makes fewer errors when entering electronic returns into its systems, thereby mitigating the risk of civil penalties and wrong interests. Additionally, taxpayers who carefully keep and store their IRS transmission receipts are much better prepared to present proof of filing, for example, if IRS records do not show that the taxpayer’s communication was received. .

  4. Document and retain all important IRS communications
    IRS processing centers aren’t the only area of ​​the agency struggling with customer service. Unfortunately, some IRS review teams appear not to perform the same comprehensive reviews that would close cases without the IRS Office of Appeals or tax litigation, which can lead to unnecessary assessments. Review teams can also be slow to make progress on taxpayer cases, requesting status extensions of several months so they have enough time to complete their work. These types of review strategies are also tied to IRS resource constraints, namely insufficient resources to keep the IRS review train running smoothly. Taxpayers can mitigate these types of scrutiny experiences by being proactive and documenting every material communication with the IRS. Each response to an IRS request and communication with an IRS examiner must be dated, printed in PDF format, and saved in a secure file. Additionally, every significant conversation with an IRS examiner should be documented via email (for example, “Dear Tax Officer, please confirm my understanding of the following discussion we had today…”). It is very important to record and save all important interactions with the IRS, as the simplest IRS reviews can turn quickly when dealing with agency resource constraints. A taxpayer’s documentation of joint settlements and review delays is now essential to establishing a thorough defense if the matter needs to go to the IRS Appeals or Disputes office.

Footnotes

1. Collins, E. (2021, November 21). IRS delays in processing amended tax returns are impacting TAS’s ability to assist taxpayers. National Taxpayers Advocate Blog. https://www.taxpayeradvocate.irs.gov/news/nta-blog-irs-delays-in-processing-amended-tax-returns-are-impacting-tass-ability-to-assist-taxpayers/

2. Velarde, A. (2022, February 7). An ex-official confirms that the IRS ignores certain statements of reasonable cause. Tax Notes. Doc 2022-4055.

3. Curry, J. (2022, March 21). Rettig makes a major backlog promise and defends audit priorities. Tax Notes. Doc 2022-8773.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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