National Advocate: IRS May Improve in 2023, But Slowly

Updated January 19, 2023

An IRS liability negatively affects a business. A tax debt exposes a business’s bank accounts or receivables to levy or seizure. It also prevents a business from obtaining a loan or funding. If your business owes money to the IRS, you need a quick solution. That’s not likely to happen when the IRS is overwhelmed, can’t answer the phone, and destroys 30 million returns rather than process them. They have a backlog of 24 million returns requiring processing. They only answer one in nine phone calls. More than 1.5 million cases are stuck awaiting assignment to only 2,000 revenue officers. Tax Guard can cut through the clutter.

TAX RESOLUTION AND LIEN SUBORDINATION

Fortunately, there’s a solution – an installment agreement and subordination of federal tax lien. With an affordable repayment arrangement in place, the IRS cannot take your bank accounts or receivables. A subordination of federal tax lien, which requires an installment agreement, addresses your lender’s priority concerns. But time is of the essence. Once the IRS files its lien, its secured interest takes priority over your lender’s 45 days later. The window for (a) resolving the IRS issue while (b) addressing your lender’s concerns was tight prior to the pandemic. That window is much smaller now that the IRS isn’t answering the phone or processing correspondence in a timely manner.

National Advocate Says IRS May Improve in 2023, But Progress Will Be Slow

On January 11, 2023, the National Taxpayer Advocate released a report summarizing the IRS’s difficulties (answering the phone, delays in opening mail, processing returns and refunds, etc.) while providing a few reasons for (guarded) optimism. She indicates, “We have begun to see the light at the end of the tunnel. I am just not sure how much further we have to travel before we see sunlight.” In short, “Staff increases come with growing pains.” The IRS may have more people to answer the phones, but those newly hired employees bring with them a different set of problems that will make life difficult for taxpayers – a lack of training and experience. Business owners with an IRS liability will need help from an experienced professional to navigate the process since many at the IRS won’t know how. 

National Advocate Says to Expect More of the Same From the IRS: Delays and Unanswered Calls

On November 10, 2022, the National Taxpayer Advocate published a blog post indicating, “the IRS finds itself with about 400,000 more tax returns held in suspension for special processing in comparison to this time last year. So, numerically the IRS is in about the same place that it was around the same time last year.” Additionally, she points out that “[b]ecause [customer service representatives] divide their time between two key roles during the filing season: (1) answering calls on the toll-free line and (2) assisting with processing amended returns and taxpayer correspondence, the more time spent working one means less time spent working the other.” This tradeoff means more delays for businesses and individuals, and more unanswered calls. It’s more important than ever to have experienced representation when dealing with the IRS given its poor customer service.

IRS DESTROYS 30 MILLION INFORMATION RETURNS

The IRS’s watchdog, the Treasury Inspector General for Tax Administration (TIGTA), released an enlightening report on May 4, 2022. Apparently, the IRS took some questionable shortcuts in its effort to catch up on its backlog of unprocessed returns. “As we reported, the IRS closed its Tax Processing Centers in March and April 2020 in response to the Coronavirus Disease 2019 (COVID-19) pandemic. Since reopening its Tax Processing Centers in June 2020, the IRS continues to have a significant backlog of paper-filed individual and business tax returns that remain unprocessed. The continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021.” We’d say we’re shocked, but after representing taxpayers before the IRS for more than twenty years, little about the IRS shocks us anymore.

IRS STAFFING SHORTAGES

We highlighted the IRS’s huge backlog of returns and correspondence, and its inability to answer the phone in January. The Washington Post reported on the IRS’s staffing struggles in a March 3, 2022, article.

  • The IRS lost approximately 20,000 employees since 2010. The division that opens paper returns and manually processes them lost about 20 percent of its staff last year alone.
  • It’s going to get worse. The IRS expects another 5,590 workers to retire this year. Almost one-fourth of IRS’s workforce of 74,000 is eligible for retirement.
  • The IRS is struggling to hire new employees. Earlier this year, the IRS advertised for 5,000 new positions in the division that answers phones and handles correspondence. The IRS hired fewer than 200 applicants because of the challenging labor market. Qualified individuals can make more money elsewhere.
  • When efforts to hire new employees failed, the IRS raided employees from other divisions. They created a “surge team” of 1,200 employees. The idea is to temporarily re-assign these employees to work on the backlog of correspondence and 24 million returns. Even if successful, it comes at the cost of damaging customer service in the areas where these employees regularly work.
  • Even when the IRS hires new workers, it will take them months to get up to speed. The IRS’s largest taxpayer services section is the wage and investment division (W&I). W&I tax examiners need between eight and 18 weeks of training. Contact service representatives answer phones, respond to mail, and log data from paper returns. They need more than 37 weeks of training.
  • The IRS’s goal is to resolve the backlog by the end of 2022. However, that is not likely. These issues will continue into 2023 and beyond.

IRS CAN’T ANSWER THE PHONE

On March 17, 2022, the IRS Commissioner, Chuck Rettig, testified before Congress. His testimony included some interesting statistics relative to call volumes and staffing.

  • IRS call volume in 2021 was unusually high. The IRS answered four million more taxpayer calls than 2020. However, the level of service decreased because demand was so high. The IRS only answered one in nine calls in 2021.
  • In the first half of 2021 alone, the IRS received more than 199 million calls. That’s about 400 percent more calls than they get in an average year. For comparison, the IRS received 55 million calls in 2020. On March 15, 2021, the IRS received 8.6 million calls, an average of about 1,500 calls per second.
  • The IRS does not have enough revenue officers. Currently, there are fewer than 2,000 revenue officers, the lowest number of field collection personnel since the 1970s. There are more than 100,000 collection cases in active inventory.
  • Additionally, more than 1.5 million cases are awaiting assignment to these same 2,000 revenue officers. More than 500,000 of these cases are considered high priority, the majority of which involve delinquent business employment taxes.

SUSPENDED NOTICES

As we pointed out last month, Congress asked the IRS to suspend automated notices until they address the backlog of returns and correspondence. In response, the IRS suspended 10 automated notices – eight personal and two business. Suspending these notices will have little effect on taxpayers.

We weren’t the only ones that noticed. A group of bipartisan members of Congress asked the IRS to explain why the IRS is suspending some notices and not others. They requested a response no later that March 14, 2022. The IRS has not yet responded.

CAN I GET A BUSINESS LOAN?

You may be asking yourself – why should I care about the IRS? Well, if your business is in good shape with the IRS, there’s probably nothing to worry about. But an IRS liability is a huge problem when trying to get a loan (or keep your current funding). Lenders typically stop funding within 45 days after the IRS files a federal tax lien. As a result, businesses lose their lines of credit or funding against accounts receivable. Businesses reaching out to an overwhelmed IRS are unlikely to get what they need, especially in a timely manner. Without help from someone with experience and expertise, businesses will not secure the necessary installment agreements, subordinations, refunds, etc.

Practice Pointers

  • Be proactive. If you wait for an IRS response, there’s a good chance that they’ll shoot first and ask questions later. The IRS can move forward with collection while you or they are sitting on unopened mail.
  • Know why lenders care. You have a limited amount of time to address a situation. It’s important to know specifically what your lender will require. Our short video can explain.
  • Know your options. Typically (not always), the best option is an AFFORDABLE installment agreement (even if you are not working with a lender). Lenders require a subordination of federal tax lien (assuming you are using your receivables as collateral for a loan). Our short video can explain.
  • Work with an experienced and knowledgeable representative. You really want to work with someone who specializes in these issues. Local attorneys or accountants may deal with the IRS once or twice a year. Those individuals can’t understand your lender’s concerns (and preserve your funding). We can help.

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