The Internal Revenue Service, faced with a backlog of millions of tax returns from last year, is reassigning workers to deal with the stacks of unprocessed paper. But the IRS faces an uphill task, and it seems Congress is unlikely to provide much help in the near future.

National Taxpayer Advocate Erin Collins recently told members of the Senate Finance Committee that the agency needs to get to a “stable and healthy condition so it can perform its core mission.” Collins told panel members on Thursday that as of early February, the tax collection agency had some 23.5 million tax returns and other documents, including correspondence that require manual processing, in its inventory.

She said the IRS reports that “all paper and electronic individual refund returns received prior to April 2021 have been processed if the return had no errors and did not require further review.” But she added, “by implication, that means returns filed as far back as April of last year are still awaiting processing.”

The IRS has taken steps to deal with the backlog and prepare for the current tax filing season, which began late last month and ends on April 18. Steps include assigning some 1,200 employees to help process amended returns and correspondence. The agency is also now establishing a “second surge team to put additional resources on the processing challenges,” she said.

Collins said the IRS has also announced “a welcome suspension” of many automated notices it sends out while it gets caught up on the backlog. But she said paper returns are the IRS’ kryptonite: “The IRS still transcribes paper line by line, number by number.”

The IRS also said it was reversing plans to close a tax processing center in Austin, Texas, in 2024. It shuttered a similar facility in Fresno, Calif., last year.

“We applaud the IRS for finally recognizing that those employees in Austin are essential to the agency’s ability to dig out from the backlog of returns and correspondence, and that there is an ongoing need for the IRS to retain this capacity,” Tony Reardon, president of the National Treasury Employees Union, which represents IRS workers, said in a statement.

The IRS has also been contracting out certain clerical work such as opening envelopes and is requiring mandatory overtime for some employees.

More work with fewer staffers

Adding to the challenge of dealing with individual and business tax returns, the IRS was given the responsibility of sending out three rounds of COVID-19 relief payments in the past two years, as well as distributing the advance earned income tax credits to eligible families.

The extra work comes at a time when the IRS’ staff is down 22% from 2010 levels, according to an analysis by the left-leaning Center on Budget and Policy Priorities, with funding down 20%.

Senate Finance Committee Chairman Ron Wyden, D-Ore., places the blame for that on Republicans, who cut the IRS’ budget while they controlled Congress. “Republicans could have changed course and corrected these issues in their big 2017 tax law,” Wyden said. “They did not. In fact, the budget cuts continued while the tax code got more complicated.”

The top Republican on the panel, Sen. Mike Crapo, R-Idaho, insisted that “over the years, I think that the IRS budget has pretty much kept up with inflation.”

The Biden administration has proposed a 14% funding increase in the IRS budget for the current fiscal year and sought an additional $80 billion increase over 10 years as part of its now-stalled Build Back Better plan.

But Congress has yet to act on the fiscal year 2022 budget, passing a series of temporary spending measures that have effectively frozen IRS funding at 2021 levels. And although there have been signs that a longer-term deal is in the works, Republicans have warned that any significant IRS spending increase would be a “poison pill” that they would oppose.

Source: NPR

The IRS lost my 2020 tax return. Well, according to the notice I got yesterday, the IRS says it “never received” the return. But I’m sticking with “lost.”

Let me explain:
As TaxVox readers may remember, I—and at least 3.4 million other tax filers—got caught in an IRS security trap last year. In a well-intended but remarkably badly designed effort to protect against identity theft, the IRS requires e-filers to report their prior year adjusted gross income (AGI) on their current year return.

In theory, this match would prove that you are you. Or, least, the IRS would know that whoever e-filed this year had access to your last year’s return information.
Sadly, the AGI on my 2019 return didn’t match the number I gave the IRS in 2020. Actually, it did match but the IRS insisted it didn’t.

Beaten by the system
I did not know then, though lots of others did, that there was an easy way to fool the system: just plug in zero for that prior year AGI. Wild guess here, but I imagine identity thieves figured this out too, thus entirely defeating the purpose of the AGI check.

There are two lessons here: 1) I am a really bad hacker and 2) The IRS’s ID protection system only catches computer idiots or honest folks.
I spent days trying to fix this. TurboTax, the software program I used to create my return, was no help. I tried calling the IRS. You know how that turned out.

Next, I tried to sort out the mess by creating an online account at IRS.gov. No luck. The service would not let me set up an account because it could not confirm that my mobile phone number is my mobile phone number. Note to IRS: It is. Really.

Failing all this, I had no choice but to mail my return. This was the last thing I wanted. And the last thing the IRS says it wanted. But it gave me no other options. Since I had a balance due, I also sent a check.

The IRS got the check. In fact, it cashed the check just six days after I mailed it. Very impressive.

The lost tax return
So imagine my surprise when I got a notice eight months later that the IRS “never received” my 2020 Form 1040.

It most likely did receive it, but somehow lost it in the piles of paper returns and other mail that have been waiting to be processed, in some cases for more than a year. Unlike many filers, at least I wasn’t expecting a refund.

Much of this was beyond the agency’s control. It already was short-staffed due to budget cuts. Like almost every employer, it got hammered by pandemic-related absences. And Congress saddled the agency with distributing multiple Economic Impact Payments (aka stimulus checks) and, later, monthly Child Tax Credit payments.

But some of this mess was directly due to bungled systems and poor management. The agency has known for at least five years that its AGI identity check did not work. It knew it was unable to answer phone calls. And it knew its system for confirming identities through mobile phone numbers was a mess. Yet it fixed none of this. And all of these failures drove me and others to do the one thing the IRS was trying to avoid: Stick a return in an envelope and mail it.

What now?
What do I do now? The IRS, as only it can, gave me two choices: Either mail a return to the IRS or mail a copy of the return I already filed. Second note to the IRS: These are sort of the same thing.

Either way, I’m about to add to the agency’s deepening pile of unread mail. For the second time.

Keep in mind that the IRS is starting the current tax season with 9 million unprocessed individual and business returns, another 3 million unprocessed amended returns, and nearly 5 million pieces of correspondence from prior tax years it has not yet addressed. The agency calls this “substantially elevated inventory.” This is something like describing Mt. Everest as a substantially elevated hill.

The IRS is warning taxpayers and Congress that the new filing season is going to be painfully slow. And it is practically begging taxpayers to e-file. Yet it continues to make it unnecessarily difficult to do so. Third note to IRS: If you want people to do something, stop making it hard.

In November, the IRS announced it will try to fix the identification verification problem by requiring online users to sign up with a new system called ID.me. Forgive me if I am skeptical.

Meanwhile, I will trundle off to the post office with yet another copy of my 2020 return. Then I’ll get to work on my tax year 2021 return. And await this year’s Adventures in Tax Filing.

Source: Forbes

WASHINGTON — The Internal Revenue Service is reminding taxpayers the deadline to file and pay tax owed for most individual income tax returns is Monday, April 18. The agency wants last-minute filers to know tax help is available to file a tax return, request an extension or make a payment, 24 hours a day on IRS.gov.

The IRS encourages taxpayers to file electronically because tax software does the calculations, flags common errors and reduces tax return errors by prompting taxpayers for missing information. The fastest way to receive a refund is to file electronically and use direct deposit.

IRS Free File is available to any person or family with an adjusted gross income (AGI) of $73,000 or less in 2021. Leading tax software providers make their online products available for free. Taxpayers can use IRS Free File to claim the remaining amount of their Child Tax Credit, the Earned Income Tax Credit and other important credits. IRS Free File Fillable Forms is available to anyone who is comfortable preparing their own tax return – so there is a free option for everyone.

Online Account provides information to help file an accurate return, including Advance Child Tax Credit and Economic Impact Payment amounts, Adjusted Gross Income amounts from last year’s tax return, estimated tax payment amounts and refunds applied as a credit.

Get a 6-month extension to file

The IRS estimates 15 million taxpayers will request an extension of time to file and the easiest way to request an extension to file is using IRS Free File. In a matter of minutes, anyone can request an extension until October 17, using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. An extension of time to file is not an extension of time to pay, however, and taxpayers must estimate their tax liability on this form and pay any amount due by the April 18 filing deadline to avoid penalties and interest.

Taxpayers can also request more time by paying all or part of their estimated income tax due and indicate that the payment is for an extension. They can do this using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a debit, credit card or digital wallet. This way they don’t have to file a separate extension form and will receive a confirmation number for their records.

IRS Form 4868 can also be downloaded from Forms, Instructions & Publications, completed and addressed to the correct IRS office, and must be postmarked by the filing deadline.

Who automatically has more time to file?

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in areas covered by Federal Emergency Management Agency disaster declarations. Deadlines to file tax returns and make tax payments are extended for affected taxpayers in certain areas of Arkansas, Colorado, Kentucky and Tennessee until May 16, 2022, and for Puerto Rico until June 15, 2022. For details on all available relief, visit the Around the Nation page on IRS.gov.

Special rules may apply for some military personnel serving in a combat zone or a qualified hazardous duty area. This also applies to individuals serving in the combat zone in support of the U.S. Armed Forces. A complete list of designated combat zone localities can be found in Publication 3, Armed Forces’ Tax Guide, available on IRS.gov. U.S. citizens and resident aliens living outside the United States have until June 15, 2022, to file their 2021 tax returns and pay any tax due.

$1.5 billion in unclaimed 2018 refunds

The IRS estimates 1.5 million taxpayers did not file a 2018 tax return to claim tax refunds worth more than $1.5 billion. The three-year window of opportunity to claim a 2018 tax refund closes April 18, 2022, for most taxpayers. If they do not file a 2018 tax return by April 18, 2022, the money becomes the property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the 2018 tax return is postmarked by that date.

Other April 18 deadlines

April 18 is also the deadline to make 2021 contributions to Individual Retirement Arrangements (IRAs). Contributions can be made to a traditional or Roth IRA until the filing due date, April 18, but must be designated for 2021 to the financial institution. For more information, see Retirement Plans FAQs Regarding IRAs or Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

Employment taxes are due April 18 for household employees including housekeepers, maids, babysitters, gardeners and others who work in or around a private residence as an employee if they were paid $2,300. For more information, see Publication 926, Household Employer’s Tax Guide.

The deadline to submit 2021 tax returns or an extension to file and pay tax owed this year falls on April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia. Taxpayers in Maine or Massachusetts have until April 19, 2022, to file their returns due to the Patriots’ Day holiday in those states.

The first quarter estimated tax payment for 2022 is also due on April 18. Taxpayers are encouraged to check their withholding for 2022 after they’ve filed their 2021 tax return. It can protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year. It can also help taxpayers adjust their tax withheld up front, so taxpayers receive a bigger paycheck and smaller refund at tax time.

Source: IRS

The Internal Revenue Service today reminded all taxpayers – particularly those who are identity theft victims – of an important step they should take to protect themselves from tax fraud.

Some identity thieves use taxpayers’ information to file fraudulent tax returns. By requesting Identity Protection PINs from the Get an IP PIN tool on IRS.gov, taxpayers can prevent thieves from claiming tax refunds in their names.

Identity Protection PINs and how to get one

An IP PIN is a six-digit number the IRS assigns to an individual to help prevent the misuse of their Social Security number or Individual Taxpayer Identification Number (ITIN) on federal income tax returns. The IP PIN protects the taxpayer’s account, even if they’re no longer required to file a tax return, by rejecting any e-filed return without the taxpayer’s IP PIN

Taxpayers should request an IP PIN:

• If they want to protect their SSN or ITIN with the IRS,
• If they want to protect their dependent’s SSN or ITIN with the IRS,
• If they think their SSN, ITIN or personal information was exposed by theft or fraudulent acts or
• If they suspect or confirm they’re a victim of identity theft.

Taxpayers can go to IRS.gov/getanippin to complete a thorough authentication check. Once authentication is complete, an IP PIN will be provided online immediately. A new IP PIN is generated every year for added security. Once an individual is enrolled in the IP PIN program, there’s no way to opt-out.

The IRS may automatically assign an IP PIN if the IRS determines the taxpayer’s a victim of tax-related identity theft. The taxpayer will receive a notification confirming the tax-related ID theft incident along with an assigned IP PIN for future tax-return filings.

Taxpayers will either receive a notice with their new IP PIN every year in early January for the next filing season or they must retrieve their IP PIN by going to IRS.gov.

Tax-related identity theft and how to handle it

Tax-related identity theft occurs when someone uses a taxpayer’s stolen SSN to file a tax return claiming a fraudulent refund. In the vast majority of tax-related identity theft cases, the IRS identifies a suspicious tax return and pulls the suspicious return for review. The IRS then sends a letter to the taxpayer and won’t process the tax return until the taxpayer responds.

Depending on the situation, the taxpayer will receive one of three letters asking them to verify their identity:

• Letter 5071C, asks them to use an online tool to verify their identity and tell the IRS if they filed the return in question.
• Letter 4883C, asks the taxpayer to call the IRS to verify their identity and tell the IRS if they filed the return.
• For those who have been a victim of a data breach, they may receive Letter 5747C and be asked to verify their identity in-person at a Taxpayer Assistance Center.

If the taxpayer receives any of these letters, they don’t need to file an Identity Theft Affidavit (Form 14039). Instead, they should follow the instructions in the letter.

When to file an Identity Theft Affidavit

If a taxpayer hasn’t heard from the IRS but suspects tax-related identity theft, they should complete and submit a Form 14039, Identity Theft Affidavit PDF. Signs of possible tax-related identity theft include:

• A taxpayer can’t e-file their tax return because a duplicate tax return was filed using their Social Security number. (Check that there’s no error in the SSN, such as transposed numbers.)
• A taxpayer can’t e-file because a dependent’s Social Security number or ITIN was already used by someone on another return without the taxpayer’s knowledge or permission. (Also check that the SSN or ITIN is correct and be sure the dependent hasn’t filed a separate tax return.)
• A taxpayer receives a tax transcript in the mail they did not request.
• A taxpayer receives a notice from a tax preparation software company confirming an online account was created in their name, and they did not create one.
• A taxpayer receives a notice from their tax preparation software company that their existing online account was accessed or disabled when they took no action.
• A taxpayer receives an IRS notice informing them that they owe additional tax, or their refund was offset to a balance due, or that they have had collection actions taken against them for a year they did not earn any income or file a tax return.
• The IRS sends a taxpayer a notice indicating that the taxpayer received wages or other income from an employer for whom they didn’t work.
• The taxpayer was assigned an Employer Identification Number (EIN), but they did not request or apply for an EIN.

The IRS will work to verify the legitimate taxpayer, clear the fraudulent return from the taxpayer’s account and, generally, place a special marker on the account that will generate an IP PIN each year for the taxpayer who is a confirmed victim.

For information about tax-related identity theft, see Identity Protection: Prevention, Detection and Victim Assistance and IRS Identity Theft Victim Assistance: How It Works on IRS.gov. The Federal Trade Commission website also includes information about tax-related identity theft.

Source: IRS – 2022-78, April 11, 2022

The Internal Revenue Service today reminds those who make estimated tax payments such as self-employed individuals, retirees, investors, businesses, corporations and others that the payment for the first quarter of 2022 is due Monday, April 18. The 2022 Form 1040-ES, Estimated Tax for Individuals, can help taxpayers estimate their first quarterly tax payment.

Income taxes are a pay-as-you-go process. This means, by law, taxes must be paid as income is earned or received during the year. Most people pay their taxes through withholding from paychecks, pension payments, Social Security benefits or certain other government payments including unemployment compensation.

Most often, those who are self-employed or in the gig economy need to make estimated tax payments. Similarly, investors, retirees and others often need to make these payments because a substantial portion of their income is not subject to withholding. Other income generally not subject to withholding includes interest, dividends, capital gains, alimony and rental income. Paying quarterly estimated taxes will usually lessen and may even eliminate any penalties.

Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers and fishers, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. See Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and its instructions for more information.

How to pay estimated taxes

Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically. The best way to make a payment is through IRS Online Account. There taxpayers can see their payment history, any pending payments and other useful tax information. Taxpayers can make an estimated tax payment by using IRS Direct Pay; Debit Card, Credit Card or Digital Wallet; or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). If paying by check, taxpayers should be sure to make the check payable to the “United States Treasury.”

Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can be especially helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations.

Source: IRS-2022-77, April 6, 2022

As the federal tax filing deadline approaches later this month, the Internal Revenue Service today announced that many Taxpayer Assistance Centers will be open around the country this Saturday, April 9 for face-to-face help.

This special Saturday help is available from 9 a.m. to 4 p.m., and no appointment is needed. Normally, TACs are only open by appointment on weekdays.

“We are inviting anyone who wants or needs some assistance to stop by,” said IRS Wage & Investment Division Commissioner and Taxpayer Experience Officer Ken Corbin. “We designed these extra weekend hours to make it easier for taxpayers to resolve an issue, inquire about their account or work with the IRS if they have an obligation they cannot meet. Whatever the case, face-to-face help will be available on this special day without an appointment.”

People can also ask about reconciling advance Child Tax Credit or third round Economic Impact Payments or inquire about various other services available while at an IRS office. If assistance from IRS employees specializing in these services is not available, the individual will receive a referral for these services. IRS staff will schedule appointments for a later date for deaf or hard of hearing individuals who need sign language interpreter services. Foreign language interpreters will be available.

While no tax return preparation will be available at any IRS TAC, the IRS.gov webpage, Contact your local office, lists all services provided. Taxpayers can make payments by check or money order. The IRS will not accept cash during these events.

Come prepared with paperwork

The IRS urges individuals to bring the following information:

• Current government-issued photo identification
• Social Security cards and/or ITINs for members of their household, including spouse and dependents (if applicable)
• Any IRS letters or notices received and related tax and financial documents

During the visit, IRS staff may also request the following information:

• A current mailing address, and
• Bank account information, to receive payments or refunds by Direct Deposit.

The IRS follows Centers for Disease Control social distancing guidelines for COVID-19, and availability may change without notice. It’s mandatory for people to wear face masks and social distance at these events when required by CDC guidance, such as in high transmission counties.

Most taxpayers can get help preparing and filing their 2021 federal tax returns using these free, safe and convenient resources:

• Any individual or family earning $73,000 or less in 2021 can use tax software from providers who make their online products available through IRS Free File at no cost. There are products in English and Spanish.
• Free help preparing tax returns is available at a Volunteer Income Tax Assistance Center (VITA) or Tax Counseling for the Elderly location (TCE) sites. The income limit for VITA assistance is $58,000. To find the closest free tax return preparation help, use the VITA Locator Tool or call 800-906-9887. To find a TCE AARP Tax-Aide site, use the AARP Site Locator Toolor call 888-227-7669.

Source: IRS 2022-76, April 4, 2022