IRS closes in on final phase of challenging tax season

The IRS is heading into the final stage of a uniquely challenging tax season that has included delays and backlogs as a result of the coronavirus pandemic.

Thursday is the deadline for people who requested extensions to file their 2019 tax returns, and it comes just three months after the July 15 non-extension filing deadline, which had been pushed back from mid-April.

The IRS this year has faced the dual responsibilities of processing tax returns, while many employees were working remotely, and carrying out aspects of coronavirus relief legislation — most prominently, the stimulus payments sent to most U.S. households.

The IRS has made progress in processing its backlog of paper tax returns and getting stimulus checks to everyone who’s eligible, but it still has more work to do.

“Millions of people who desperately rely on the IRS to receive much-needed financial assistance to pay for medical care, groceries, housing, are still waiting for those refunds and stimulus checks,” Rep. Gerry Connolly (D-Va.), the chairman of the House Oversight and Reform Subcommittee on Government Operations, said at a hearing last week with IRS Commissioner Charles Rettig.

The coronavirus took hold in the U.S. during tax-filing season, just weeks before the traditional April 15 filing deadline. The IRS extended that deadline to July 15, while also keeping the traditional extension deadline of Oct. 15.

The IRS directed most of its employees to work remotely in late March. Some employees have since returned to their worksites and have faced a backlog of tax returns and other mail to process.

March was also when President Trump signed into law the $2.2 trillion CARES Act that authorized the stimulus checks of up to $1,200 per adult and $500 per child, the Paycheck Protection Program (PPP) that provides loans to small businesses and other relief initiatives that have required work from the IRS.

The combination of the extended deadline, office closures and new relief programs has required the agency to juggle many different tasks, leading to both criticism and praise.

Rettig said during last week’s hearing that as of Sept. 25, the IRS had processed more than 153 million individual returns and issued nearly 122 million refunds. He noted that the agency did this while also issuing stimulus payments and preventing cyberattacks.

Rettig said the agency had a backlog of about 5.3 million unopened pieces of mail — an amount that is significantly smaller than the size of the backlog in the spring — and that an estimated 2.5 million of those mailings are paper returns. The agency tries to prioritize processing tax returns and refunds when going through the mail, he said.

“Our people are working really hard,” said Rettig, who was appointed by Trump to serve a term that ends in 2022.

But lawmakers said during the hearing that even though most people have received their refunds, some of those who haven’t are those who have struggled the most during the pandemic.

“I do appreciate the effort, but we have a lot of people who are struggling,” said Rep. Jody Hice (R-Ga.), the top Republican on the Oversight and Reform subcommittee.

Connolly said the number of people with problems “may be a small percentage, but it’s real human beings and real needs.”

Rettig said that more than 160 million stimulus payments have been issued, and he noted that the Treasury inspector general for tax administration found in a report issued in June that the IRS correctly computed the payment amount about 98 percent of the time.

But there may be millions of low-income people who have yet to receive their payment, and reaching this group has been a major focus and challenge for the IRS.

“We have remained concerned about getting payments out to people who don’t normally file a return, including historically underserved communities of our nation,” Rettig said. He said the IRS has worked with partners to translate materials about the payments into more than 35 languages and have distributed these materials across the country.

The IRS in April established a web tool that non-filers can use to register for their payment. Last week, the agency extended the deadline for people to use that tool from Oct. 15 to Nov. 21.

In addition to non-filers, lawmakers are pressing the IRS to get stimulus payments to other groups that haven’t yet received them.

One such group is incarcerated individuals. The IRS had said earlier this year that prison inmates are not eligible for stimulus payments, but late last month a federal judge in California issued a preliminary injunction stating that the IRS can’t deny payments to incarcerated individuals who would otherwise be eligible. The Trump administration has filed an appeal.

Another group that lawmakers want the IRS to get payments to is survivors of domestic violence. Lawmakers said that in some cases, survivors’ payments went to their abusive spouses or were intercepted by abusive partners.

Rettig said that “the CARES Act does not provide the Internal Revenue Service with discretion to add an additional, say in this context, $1,200 to the victim of domestic violence,” but that the agency is sympathetic to the issue.

Nina Olson, a former national taxpayer advocate who is now executive director of the Center for Taxpayer Rights, suggested that the IRS could issue payments to domestic violence survivors using the same types of processes that it uses to help victims of identity theft or return-preparer fraud.

“There’s a lot of work that can be done,” she said in an interview with The Hill.

The majority of IRS employees are still working remotely. Employees who have returned to their worksites have encountered some safety concerns at times, such as inconsistent enforcement of the agency’s mask-wearing policy and “isolated situations” where physical distancing was not being practiced, said Tony Reardon, president of the National Treasury Employees Union, which represents IRS employees.

The pandemic and related relief efforts haven’t just posed challenges for the IRS this filing season; they’ve also squeezed tax preparers.

Melanie Lauridsen, senior manager for tax policy and advocacy at the American Institute of CPAs, told The Hill that she’s gotten the sense based on conversations with members of her group that “it has probably been the absolute worst filing season ever.”

She said that CPAs had to figure out how to get their clients’ information while not being able to hold in-person meetings, and it has been harder for CPAs to reach out to the IRS with questions. She also said that preparers had a bigger time crunch for extension returns this year because the period between the regular deadline and the extension deadline was smaller and that CPAs have also been working on PPP applications and loan-forgiveness forms during the filing season.

The IRS has had to balance addressing the remaining issues with this year’s filing season with preparing for next year’s filing season.

“The IRS is certainly stuck administratively between a rock and a hard place,” said Pete Sepp, president of the National Taxpayers Union, a right-leaning taxpayer advocacy organization. He added that the agency could face an additional challenge if Congress passes another relief bill that includes a second round of direct payments.

Olson predicted that next year’s filing season will also be challenging because of the need to reconcile stimulus payments on 2020 tax returns that will be filed in 2021. She said there will likely be taxpayer confusion and mistakes, as was the case in 2009 following the issuance of rebates the prior year.

“People will be frustrated, they will make mistakes,” she said. “It will just be a very difficult filing season.”