by | Jul 7, 2022 | Tax Tips and News
National Taxpayer Advocate Erin Collins says the Internal Revenue Service is concerned about the 21.3 million paper-return backlog. In her midyear report to Congress, Collins notes that low-income families could face financial burdens as affected refunds are frequently delayed by 10 months.
What is the Taxpayer Advocate Service?
The Taxpayer Advocate Service was established by the Taxpayer Bill of Rights 2 legislation in 1996. Later expanded by the IRS Restructuring and Reform Act of 1998, the TAS raises individual and systemic issues faced by taxpayers.
How Does the Backlog Affect Taxpayers?
The IRS’ delay in working through the mountain of paper tax returns leads Collins’ list of concerns. At the end of May, over 21 million paper tax returns had yet to be processed by the IRS—up by 1.3 million from the same time last year. While diplomatic, Collins is clearly concerned about the trend this reflects.
“The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds,” she writes. “Unfortunately, at this point, the backlog is still crushing the IRS, its employees, and most importantly, taxpayers. As such, the agency is continuing to explore additional processing strategies.”
The fact that most individual taxpayers get some level of refund is an indicator of how widespread the effects of the backlog can be. Besides delays in processing returns, taxpayers this year have also faced delays in processing correspondence to the IRS, and difficulties in reaching the agency by phone.
“At the end of the day, a typical taxpayer cares most about receiving his or her refund timely,” Collins explains. “Particularly for lower-income taxpayers who receive Earned Income Tax Credit benefits, tax refunds may constitute a significant percentage of their household income for the year. Thus, these processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many.”
A Mountain of Paper Returns
The IRS has worked hard over the last few years to move taxpayers to electronic filing, and it has largely worked: 90% of individual taxpayers e-filed last year. Unfortunately, that still left some 17 million taxpayers to file paper returns.
But why?
The IRS says some taxpayers just chose to file on paper. Other taxpayers had no choice; they may have hit a roadblock to e-filing, such as being required to file a tax form or schedule that the agency couldn’t process electronically.
Historically—before the pandemic—paper-filers could expect a refund within four to six weeks after filing. That timeframe has stretched out over the past year. Now, paper-filers can wait up to six months, although in some cases their refund might not show up for 10 months or even more.
In May of this year alone, the report says, the IRS averaged processing some 200,000 Forms 1040 tax returns every week. Yet, at the end of May, the IRS had a Forms 1040 backlog of 8.2 million returns.
As if that weren’t enough, the backlog doesn’t include millions more paper tax returns that still had to be classified or were expected to arrive before the October 15 extended filing deadline.
Collins’ report concludes that the IRS would have to process well over 500,000 Forms 1040 returns every week to eliminate the backlog this year. That would mean processing twice as many returns as the IRS currently does.
There’s more to the backlog than just individual tax returns. Every year, millions of business tax returns and amended tax returns from individuals and businesses are also paper-filed.
Overall, the mountain of returns yet to be processed has grown by 7%.
Faced with a “daunting” backlog of paper returns that likely will be carried over into the 2023 filing season, Collins proposes the IRS uses 2-D barcoding or some other advanced scanning technology so the transcription of paper returns can be automated for future filing.
“Today, the digits on every paper return must be manually keystroked into IRS systems by an employee,” Collins wrote. “In the year 2022, that doesn’t just seem crazy. It is crazy.”
Other Hurdles to Be Cleared
Correspondence Processing Delays: Another paper problem arises when a taxpayer gets a notice and is requested to respond—or chooses to respond; the taxpayer usually has to do so by mail.
For example: through May 21, the IRS had processed 5 million taxpayer responses to proposed tax return adjustments. It took an average of more than eight months for a taxpayer to complete the process—251 days to be exact—three times the average processing time in 2019.
“When a math error or similar notice is generated in connection with a paper-filed tax return,” the report says, “the combination of the return processing delay and the correspondence processing delay may mean that the taxpayer must wait well over a year to get the issue resolved and receive the refund due.”
The report also notes that taxpayers who are trying to resolve identity theft issues also have to suffer through long delays, waiting nearly a year on average to complete the process of sending affidavits and other documentation to substantiate their identities.
Telephone Overload: The Internal Revenue Service fielded about 73 million telephone calls during the 2022 filing season. While that number is overwhelming, consider that only one call out of 10 actually reached a human IRS employee. When compared with numbers from the 2021 filing season, the percentage of IRS-fielded calls in 2022 is very close to that in 2021.
“If a private company failed to answer nine out of 10 customer calls, customers would go elsewhere,” Collins wrote. “That, of course, is not an option for U.S. taxpayers, so it is critical that the IRS increase staffing in its telephone call centers to handle the volume of calls it receives.”
Hold times on IRS lines increased to 29 minutes, up from 20 minutes in 2021.
Looking Ahead
The Taxpayer Advocate Service, or TAS, has come up with some key objectives for the IRS over the coming year. Collins says her department will place a lot of emphasis on working with the agency to help its performance by:
- Automating the processing of paper tax returns
- Reducing barriers to e-filing tax returns
- Improving the IRS’ hiring and training processes
- Improving telephone service
For more of the latest tax-news updates, be sure to bookmark Taxing Subjects.
Source: National Taxpayer Advocate issues midyear report to Congress; expresses concern about continued refund delays and poor taxpayer service
– Story provided by TaxingSubjects.com
by | Jun 28, 2022 | Tax Tips and News
The Internal Revenue Service started using voice bots on many of its toll-free telephone lines around the first of the year. The system has already helped more than 3 million taxpayers avoid wait times for simple questions about payments or notices, and the agency is adding more options.
Callers can set up or modify payment plans on the Automated Collection System (ACS) and Accounts Management toll-free lines. The system will even help create a personal identification number using information from a taxpayer’s most recent IRS bill and some additional personal information.
Will the IRS add more voice bots in the future?
IRS voice bots use artificial intelligence software to route callers to the information they need based on voice responses. Initially designed to answer simple questions, the IRS plans to continue adding voice-bot features that will help callers avoid extended wait times—even during tax season.
Voice bots aren’t just being used to collect payments. They have already been deployed on the Economic Impact Payment (EIP) and Advance Child Tax Credit toll-free lines to answer frequently asked questions. And the IRS says planned upgrades will provide taxpayers with active PINs access to a number of newly automated services:
- Account and return transcripts
- Payment history
- Current balance owed
While voice bots can quickly provide information for taxpayers, the agency says live phone representatives will still be available for English and Spanish speakers.
More information about self-service options is available on IRS.gov.
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Source: IR-2022-127
– Story provided by TaxingSubjects.com
by | Jun 24, 2022 | Tax Tips and News
Singer Neil Sadaka was right: breaking up is hard to do. For clients in the process of ending their marriage, there is more to consider than a simple separation of assets. Whether legally separating or divorcing, they could be facing big changes in their individual tax situations—and the Internal Revenue Service recently highlighted information that could help.
One of the first issues is timing. The Internal Revenue Service considers a married couple to be wed until they get either a separate maintenance decree or a final divorce decree. So, until there is an official court ruling, they’ll still be viewed as a married couple for tax purposes.
Another early issue is withholding. When a taxpayer divorces or legally separates from their partner, they will normally need to modify their withholding setup at work. This means filing a new Form W-4 with their employer.
For some, the process may not be more complicated. Taxpayers who receive alimony payments, for example, may have to make estimated tax payments. However, help is available through the Tax Withholding Estimator tool on IRS.gov. This tool can determine whether current withholding amounts are correct for a specific situation.
What are the tax considerations of alimony and separate maintenance?
The IRS could view money “paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes.” Why is this important? Some payments are deductible for the payer and have to be included in income by the payee. However, there are exceptions.
“Individuals can’t deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification,” the IRS explains. “Alimony and separate maintenance payments received under such an agreement are not included in the income of the recipient spouse.”
What about child custody?
Figuring out which partner can claim a dependent child is often a hotly contested topic among those on the brink of a breakup. According to the IRS, “the parent who has custody of the child can [generally] claim the child on their tax return.” However, the situation gets murky if parents split custody 50-50 but can’t agree who gets to claim the child(ren).
In that situation, there are tie-breaker rules that can apply. Further, under this arrangement, the IRS says these “child support payments aren’t deductible by the payer and aren’t taxable to the payee.”
What filing statuses are available to separating or divorced couples?
The IRS lists four basic filing statuses available for individuals who are divorced or separating:
- Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.
- Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.
- Head of household. Some separated people may be eligible to file as head of household if all of these apply:
- Their spouse didn’t live in their home for the last six months of the year.
- They paid more than half the cost of keeping up their home for the year.
- Their home was the main home of their dependent child for more than half the year.
- Single. Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.
See Publication 504, Divorced or Separated Individuals, and Topic No. 452, Alimony and Separate Maintenance, for more information on tax issues for divorcing or separating couples.
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Source: IRS Tax Tip 2022-92
– Story provided by TaxingSubjects.com
by | Jun 16, 2022 | Tax Tips and News
Due to rising gasoline prices, the Internal Revenue Service has taken the rare step of increasing its optional standard mileage rates for the last six months of the 2022 tax year. These rates are significant since taxpayers use them to calculate the deductible costs of operating a vehicle for business purposes.
Typically, the IRS tweaks mileage rates for the upcoming tax year in the fall. However, record fuel prices pushed the agency to act now for the current year. The last time the IRS made a midyear adjustment was 2011.
What are the new mileage rates for 2022?
The IRS issued Announcement 2022-13 to make the new rates official, setting forth the associated legal language, guidance, and limitations for the new rates. Here is a short breakdown from the agency:
- The standard mileage rate for business travel will be 62.5 cents per mile
- The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents per mile
- The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute
- These new rates become effective July 1, 2022
Moving expenses are only available to active-duty service members “pursuant to a military order and incident to a permanent change of station” (Announcement 2022-13). Taxpayers who traveled prior to this update—from January 1 to June 30, 2022—should use Notice 2022-03 to calculate their mileage rates.
What are the limits on who can claim a deduction?
Announcement 2022-13 states that the Tax Cuts and Jobs Act (TCJA) passed in 2017 limits which taxpayers are eligible to claim a deduction. The TCJA suspends all miscellaneous itemized deductions that are tied to the 2% of adjusted gross income floor until 2026, including unreimbursed employee travel expenses.
So, how do reservists, some state or local government officials, and some performance artists get to claim the mileage rate whereas other taxpayers do not? They are paid on a fee basis, and the IRS considers the deduction in these cases to be an adjustment to income.
What is the big picture?
Fuel costs are, no doubt, a significant factor for determining mileage rates, but other factors also play a part, such as depreciation, insurance, and other costs. Taxpayers can use the optional business standard mileage rate to help calculate the deductible costs of operating a vehicle for business purposes, instead of keeping track of the actual cost.
In addition, the federal government and some businesses use the rate to reimburse employees for their mileage. The IRS notes that taxpayers always have the option to use their vehicle’s actual costs rather than the optional standard mileage rates.
We can help you stay up to date!
Here are just a few recent IRS updates we covered:
Sources: IRS increases mileage rate for remainder of 2022; Announcement 2022-13
– Story provided by TaxingSubjects.com
by | Jun 7, 2022 | Tax Tips and News
The Internal Revenue Service continues to add functionality to its online tools, now putting more muscle behind its Where’s My Refund? feature. Used more than 776 million times in 2021, it is one of the agency’s most popular online offerings—and it can reduce client questions about refund status.
“Previously, Where’s My Refund? only displayed the status of the most recently filed tax return within the past two tax years,” the IRS explains. Now, users can view information for any of the last three tax years on their status report.
While this additional information will undoubtedly be more convenient for taxpayers with Internet access, it also marks a reduction in phone service that available to callers. The agency notes that those who call the refund hotline will only receive information related to their 2021 return.
Punctuating this shift, the IRS says, “There’s no need to call the IRS to check on refund status unless it has been more than 21 days since the return was filed or the tool says the IRS can provide more information.”
How do taxpayers access Where’s My Refund?
Where’s My Refund? is accessed through IRS.gov or IRS2Go, the agency’s mobile app. The identification verification process requires their Social Security Number or ITIN, filing status for the requested tax year, and amount of the refund they’re checking on, using the original filed return.
The IRS says validated online users of Where’s My Refund? can get the status of a refund within:
- 24 hours after e-filing a tax year 2021 return
- Three or four days after e-filing a tax year 2019 or 2020 return
- Four weeks after mailing a return
For details on a taxpayer’s adjusted gross income, a balance due, or other account information, taxpayers should check their Online Account.
Speeding up 2021 returns
IRS Commissioner Chuck Rettig says the upgrade to Where’s My Refund? can help speed up the processing of TY 2021 returns—especially for taxpayers who chose to request an extension of time to file.
“We encourage those who expect a refund, but requested an extension, to file as soon as they’re ready. We process returns on a first-in basis, so the sooner the better,” said Rettig. “There’s really no reason to wait until October 17 if filers have the relevant information to file now.”
Rettig reminds that electronic filing is available 24 hour per day and his agency is actively taking in returns, processing and issuing refunds.
More improvements to come
If taxpayers are happy with this latest round of upgrades, Rettig said, more improvements are in the works.
“The IRS is committed to identifying opportunities to make improvements in real time for taxpayers and the tax professional community,” said Rettig. “This enhancement to Where’s My Refund? is just one of many.”
Source: IRS updates feature on Where’s My Refund?
– Story provided by TaxingSubjects.com
by | May 29, 2022 | Tax Tips and News
Organizations seeking tax-exempt status with the Internal Revenue Service should know that there is more to the process than merely signing on the dotted line. The process for being declared tax-exempt under Section 501(c)(3) of the Internal Revenue Code can vary based on the applicant organization’s specific situation.
First and foremost, it has to be organized and operated for one of the following purposes defined by the IRS:
- Charitable, religious, educational, scientific, or literary purposes
- Testing for public safety
- Fostering national or international amateur sports competition
- Preventing cruelty to children or animals
Application for 501(c)(3) status is made using a Form 1023-series application.
The Process
The circumstances around the organization determine how simple or complex the process will be. The IRS has created a step-by-step application process guide—but the agency also recently highlighted additional information that can help.
Before filling out the application, candidate organizations should apply for a nine-digit Employer Identification Number (EIN)—even if they don’t have any employees. EINs are issued by the IRS to identify companies and tax-exempt organizations when they file and report taxes, and every 501(c)(3) application requires this number.
To apply for an Employer Identification Number, organizations can simply apply online through the IRS website. Once the Form 1023-series application has been filled out, it must be sent to the IRS electronically using Pay.gov online.
Keep in mind, however, that not every organization seeking tax-exempt status has to apply for 501(c)(3) exemption. Churches (including integrated auxiliaries) and public charities with yearly gross receipts of no more than $5,000 are already considered tax-exempt.
Time and Other Considerations
Just when a candidate organization is deemed tax exempt depends on its Form 1023. “If they submit this form within 27 months after the month they legally formed, the effective date of their organization’s exempt status is the legal date of its formation,” the IRS explains. “If an organization doesn’t submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023.”
Once an organization has been approved as a tax-exempt entity by the IRS, it is considered a private foundation unless the group can meet the standards to be considered as a public charity. Approval for 501(c)(3) status also brings a responsibility to those in the new tax-exempt organization. As such, charitable organizations have to make certain documents available to the public for their inspection.
Among these public documents are the organization’s application for exemption and its annual information tax returns for the past three years. Publication 557, Tax Exempt Status for Your Organization has more information on public inspection requirements.
Additional information, including help for applying organizations, is available from the IRS website:
Source: Things organizations should know about applying for tax-exempt status
– Story provided by TaxingSubjects.com
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