Financial Planning

Talking With the Taxpayer Advocate: The IRS Is Under Stress

The pandemic and new stimulus-driven responsibilities are straining IRS resources.

Erin Collins is the IRS national taxpayer advocate. Before joining the IRS in March 2020, she was managing director of KPMG’s tax controversy practice for the western region.

How has the pandemic affected the ability of the IRS to provide service to taxpayers? Social distancing requirements limited IRS operations that require employees to work in close quarters, and that created several categories of work backlogs. The IRS closed a number of its campuses, so it was parking paper tax returns and correspondence in trailers for a while. Now, my understanding is that they’ve gone through all of that correspondence, and it’s been entered into IRS systems but not yet worked. At the end of January, there were still 6.7 million individual 1040 paper tax returns that had not been processed. If those returns involved a refund, it hadn’t been paid. Taxpayers who file their 2020 tax returns on paper will face similar problems, so I urge tax­payers to file electronically to avoid delays.

The IRS has been tasked with distributing stimulus checks and will also be responsible for administering the expanded child tax credits in the recently enacted stimulus bill. Is the IRS being asked to do too much? The IRS was created as a tax administrator, and in recent decades, it has been asked to administer a number of social programs. The challenge is: Does it have the information technology and infrastructure to be further stretched beyond its traditional tax-collection mission without breaking? The IRS’s outdated information technology, along with reduced funding, has taken a toll on its ability to provide quality service to tax­payers. It will have to be fixed by increasing funding for modernization and infrastructure and staffing. If the U.S. can land a rover on Mars and send pictures back to earth, we should be able to provide a fully functional, fair tax admin­istration system that provides quality service on a daily basis.

What should taxpayers do if they can’t afford their tax bill? They should file their tax return and work with the IRS on the payment portion. If taxpayers don’t file on time, they face a penalty of 5% of the amount due per month, for up to 25% of the tax due. The failure-to-pay penalty is substantially less—just 0.5% of the amount due each month. The IRS has been very flexible with taxpayers, especially during the pandemic.

Do you support requiring all tax preparers to meet minimum competency re­quirements? Absolutely. Tax­payers and the tax system depend heavily on the ability of preparers to prepare accurate tax returns. Over the years, numerous studies have found that noncredentialed preparers routinely prepare inaccurate returns, and some engage in fraud. I believe taxpayers and the tax system would benefit from weeding out incom­petent preparers and bad apples.

As the pandemic winds down, what are your priorities for the IRS? I would love to see a robust online account so taxpayers can access their tax returns and transcripts electronically and use e-mail to communicate with the IRS. I realize the IRS has security and privacy concerns and we want to prevent fraud, but so do banks and they’ve been able to make it work for more than two decades. If taxpayers can electronically communicate with the IRS, that would open up the phone lines for people who don’t have the ability to communicate electronically or don’t have broadband. A win-win all around.

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