Ready or not, tax season is here … and the Internal Revenue Service says it isn’t ready. The IRS will begin processing 2021 federal individual income tax returns on Jan. 24. However, while the filing deadline hasn’t changed, the IRS is still reporting being backlogged, underfunded and understaffed. The COVID-19 pandemic began to highlight some of the problems that existed within the IRS. As federal workers were sent home in March 2020, the IRS had limited capability for employees to work remotely and no plan to sort through and process mail, although the IRS reports having 61,000 working remotely. Now, in 2022, the IRS has issued a statement that it’s preparing to accept filings but to be prepared for delays.
Long Wait for Estate Refunds
In 2021, the IRS had almost 82,000 workers who were tasked with processing over 169 million 2020 individual returns and 53 million business returns. While up slightly from 2019, employee levels are still below where they were in 2010. Inadequate staffing has led to delays in processing returns and notices. This delay appears to be most notable for those working on the administration of decedents’ estates. After the death of a taxpayer, their final individual income tax return must still be filed. Any taxes due must be paid before an estate can be closed, but any refund must be received and processed before an estate can be closed as well. Unfortunately, a Form 1310 is required to claim a refund on behalf of a deceased taxpayer, and Form 1310 can’t be filed electronically. Thus, there are a great number of estates that are awaiting refunds that are extremely delayed due to limited staff at the IRS and the backlog of mail that occurred because of the pandemic. In addition, many administrators find that a decedent has not appropriately filed income taxes prior to their death. The administrator of the estate can file the past due returns; however, they too must be paper filed, which results in a delay in processing. Even once processed, administrators are still waiting for a final calculation of any interest and penalties due; thus, the delays stemming from the IRS are creating significant delays in closing estates all over the country.
Electronic Filing Is Preferable
The same delays appear to be occurring for those who’ve responded to IRS notices by mail, which isn’t surprising given the mail delays. For those with clients preparing to file their 2021 individual income tax returns, there are several tips for a smooth tax season. First, be sure that your client has all the information needed to complete their return. Given the processing delays, you don’t want your client to file an incomplete return and then later need to file an amended return on paper. Many investment account consolidated 1099s aren’t finalized until March; therefore, if your client is likely to receive a corrected 1099, it’s best to wait to file the return. Second, be prepared to file electronically. It appears that the delays the IRS is experiencing are within the review and processing of returns filed on paper. While delays are still accepted, the IRS is reviewing and processing electronically filed returns much faster. Finally, advise your clients to be prepared to either pay their balance due electronically or receive their refund electronically. Again, like filing, the processing of any payments appears to be delayed. In addition, a lower staff level is making it much harder to connect with someone on the telephone, thus late payments will be difficult, if not impossible, to get straightened out. Finally, be patient. For those such as an administrator of an estate who are forced to file on paper, have patience. It may be a year or more before a return is processed, but it will get done eventually.