ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE IRS IS IN ONE HELL OF A MESS! – PART 2
By Robert S. Schriebman
The Pandemic has caused a virtual paralysis within the IRS to the point that it is impacting small businesses attempting to make applications for emergency loans from the Small Business Administration. Some of these delays are approaching 2 years. There is an unprecedented backlog of income tax returns and payroll tax returns.
According to Treasury Secretary Janet Yellen, as of late December 2021, the IRS has a backlogged of 6 million individual income tax returns and other 2.3 million amended individual tax returns to process. It also has 2 million quarterly and annual payroll tax returns that need to be processed along with another 500,000 amended quarterly payroll tax returns to be processed. These sad and alarming statistics do not mention the backlog of corporate and partnership tax returns. I cannot recall another time in my career of 53 years of practice when I have seen the IRS in such a mess.
Congress Demands the IRS Take Immediate Remedial Action
Members of Congress want taxpayers to be relieved of penalties if they have been impacted by the pandemic. They are also demanding that the IRS expedite the processing of amended returns. In addition to these demands, Congress wants the IRS to put a hold on automated collection activity and to adopt a more liberal policy for penalty abatement requests. The IRS manual provides an automatic first-time penalty abatement when requested by the taxpayer. In addition to this first-time abatement, Congress wants the IRS to offer a reasonable cause penalty waiver in addition to the first-time penalty abatement request. There is also a demand for both a waiver for an underpayment of estimated tax penalty and a late payment penalty for the 2020 and 2021 tax years.
The Specific demands of Congress are the following:
- Halt automated collections from now until at least 90 days after April 18, 2022;
- Delay the collection process for filers until any active and pending penalty abatement requests have been processed;
- Streamline the reasonable cause penalty abatement process for taxpayers impacted by the Covid-19 pandemic without the need for written correspondence;
- Provide targeted tax penalty relief for taxpayers who paid at least 70 percent of the tax due for 2020 and 2021 tax years; and
- Expedite processing of amended returns and provide TAX and congressional caseworkers with timely responses.
The IRS Responds to Congress
The IRS is very concerned about the backlog of initial tax returns, amended returns, refund claims and all of the unopened correspondence piling up. However, halting automated collection notices may not be so easy. On January 27, 2022 the IRS informed Congress, “With an outdated technological ecosystem, these are changes that cannot be made as efficiently as they should be – and that is part of the reason why investing in IRS IT modernization is so important.” The IRS also informed Congress that making these adjustments, “could run the risk of jeopardizing the overall operation system critical to the current tax season – and the more than 160 million revenues we anticipate receiving.” Another problem pointed out by the IRS is a “Catch 22.” Simply put most of the automated notices are required by statutes and must be issued within the time frame set forth in their respective statutes. Congress may have to initiate emergency legislation to temporarily put a halt to the statutory requirements. These types of responses are typical whenever Congress looks into the activities of the IRS, “if only we had more money, we could solve the problem.”
It is clear from the back and forth of correspondence between Congress and the IRS, that nothing is going to be moving quickly. There is a giant elephant in the room and everyone is ignoring its presence. In the meantime, taxpayers who are hurting, or want justice, have to bide their time.
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 40 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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