Ask The California Employment Tax And Payroll Tax Attorney – National Taxpayer Advocate Gives The IRS A Report Card
By Robert S. Schriebman
Erin Collins is the National Taxpayer Advocate. The National Taxpayer Advocate is required by statute to submit a year-end report to Congress that makes administrative recommendations to resolve taxpayers’ problems. IRC § 7803(c) authorizes the Advocate to submit the administrative recommendations to the IRS Commissioner and requires the IRS to respond within 3 months. The Advocate made 46 administrative recommendations in her 2022 year-end report. The IRS has agreed to implement 38 of the recommendations in full or in part.
In her report to Congress, Collins made many recommendations, some of which are as follows: the IRS must give taxpayers strong online accounts that are comparable to accounts provided by banks and other financial institutions. The IRS must make it possible for all taxpayers to e-file their tax returns. The IRS must provide faster relief to victims of identity theft. The IRS must replace its 60 discreet case management systems that currently have limited ability to communicate with each other and replace it with an integrated, agency-wide system. Finally, the IRS must transform the way it performs its administrative mission and become a responsive and trusted agency. Improved IT is imperative in achieving that goal.
The Advocate Found Progress with How the IRS Processes Original Tax Returns
The IRS reduced its backlog of unprocessed paper-filed original tax returns from 13.3 million at the end of the 2022 filing season to 2.6 million at the end of the 2023 filing season. This represents a reduction of 80% and marks a return to pre-COVID levels. However as of early June 2023, the inventory of unprocessed paper-filed original returns has grown to 4.1 million consisting of about half individual returns and half business returns.
The Advocate Found that the IRS Needs to Improve the Processing of Amended Returns
In contrast to the 80% reduction in the backlog of paper-filed original returns, the inventory of amended returns was 3.6 million in April 2022 and 3.4 million in April 2023, a reduction of only 6% between the two periods.
The Impact of the Inflation Reduction Act Funding and IRS Strategic Priorities
The Inflation Reduction ACT (IRA) gave the IRS about $79 billion in funding. Of this huge amount, only $3.2 billion went for taxpayers’ services and only $4.8 billion was allocated for Business Systems Modernization. The Fiscal Responsibility Act of 2023 reduced the IRS funding to $58 billion. This is a substantial reduction and things are still up in the air as to how the reduction is going to be allocated. The Advocate has suggested a long list of priorities, some of which has been discussed above.
More Taxpayers Need to Take Advantage of First-Time Penalty Abatements
Many taxpayers do not know about the first-time abatement of penalties for failure to file, failure to pay, and failure to deposit required tax. The first-time abatement (FTA) is generally provided only if a taxpayer requests FTA or reasonable cause relief. This is not a once-in-a-lifetime abatement. It is available if a taxpayer has been compliant within the last 3 years. In 2021, the IRS granted FTA to about 200,000 taxpayers, but there were about 4.3 million taxpayers eligible for relief from these penalties who did not receive it. Most people do not know about FTA. The Advocate believes taxpayers who qualify for “reasonable cause” penalty relief, should receive it and not be forced to use their once-in-3-years-FTA-waiver.
The IRS has a long, hard, and complex road ahead in implementing not only what the Advocate has recommended, but the demands of Congress as well. Where do you begin to start in modernizing an essentially antiquated organization? Modernization is going to take some time. With the funding reduction brought about by the Fiscal Responsibility Act of 2023, it will be a challenge for the IRS to hire and train new auditors and collectors coupled with the demands brought about by IT. We may see further funding reductions as Congress wrestles with future budgeting.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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