IRS watchdog details coronavirus-related challenges for taxpayers

The IRS's in-house watchdog on Monday released a report describing challenges facing taxpayers in light of the coronavirus's effects on IRS operations.

"The spread of COVID-19 brought much of the country to a grinding halt, and that was largely true of the IRS’s operations — and right in the middle of the filing season no less," National Taxpayer Advocate Erin Collins wrote. "Despite the IRS’s best efforts, there have been notable adverse taxpayer impacts."

The IRS directed most employees to evacuate the agency's offices in late March in order to reduce workers' risk of exposure to the coronavirus. Employees have been able to perform some of their responsibilities while working from home, but other key IRS responsibilities, such as processing paper tax returns, could not be performed remotely. The agency has started to bring back workers, but it has a backlog of work.

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Collins said that taxpayers who filed paper tax returns may have to wait a considerable amount of time to get their refunds. The agency estimated that as of May 16, it had a backlog of 4.7 million paper filings, according to the report.

"Although the IRS is reopening some of its core operations, it is not clear when it can open and log all the returns sitting in mail facilities," she wrote.

Collins also said that there are some taxpayers who are experiencing long delays in getting their refunds because the IRS's processing filters mistakenly flagged them. Some of these refund delays have occurred for low- and middle-income families claiming certain tax credits, she said.

"Affected taxpayers are often asked to mail in documentation to substantiate their claims, but the IRS has not opened or processed many of their responses, delaying their refunds," Collins wrote. "Refund delays can have a significant financial impact on low-income taxpayers, as refunds often constitute a significant percentage of their annual household incomes."

Collins noted that the IRS coronavirus-related closures made it harder to taxpayers to get assistance both in person and over the phone. While the agency has started to reopen, it will take a while for its customer service operations to return to full capacity, the report said.

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Collins said that the IRS has started to process a backlog of notices that couldn't be mailed while IRS campuses were closed, but that some of these notices have due dates that have already passed. Instead of reissuing the notices, the IRS is including inserts in the notices that include updated deadlines. This could cause confusion for taxpayers, she said.

Collins also described some challenges facing taxpayers relating to the stimulus payments created by the $2.2 trillion CARES Act law that President TrumpDonald John TrumpOmar fires back at Trump over rally remarks: 'This is my country' Pelosi: Trump hurrying to fill SCOTUS seat so he can repeal ObamaCare Trump mocks Biden appearance, mask use ahead of first debate MORE signed in March.

Some challenges relating to the stimulus checks include the fact that some taxpayers who previously purchased refund anticipation loans had their payments initially sent to inactive accounts, some Social Security and veterans benefit recipients may not receive the payments for their children until next year, and individuals in certain circumstances are being asked to return their payments.

The report, citing information provided by the IRS on June 23, says that the IRS has issued about 965,000 payments to deceased individuals, and that the agency was aware that 837,000 of those people had died. Initially, the IRS did not program its systems to exclude people who died. But in early May, the IRS said that payments sent to dead people should be returned.

Collins is recommending that in cases where the IRS sent payments to people it knew had died, that "the IRS not spend its resources pursuing enforcement actions against a decedent’s estate or a family member who received an [economic impact payment] for a decedent." 

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The figure provided by the IRS about the number of payments sent to dead people is slightly smaller than a figure included in a Government Accountability Office report. That report said that nearly 1.1 million payments had been sent to dead people as of April 30, citing the Treasury Inspector General for Tax Administration.

The IRS said earlier this month that it has issued about 160 million stimulus payments in total.

Collins started as National Taxpayer Advocate on March 30. She succeeds Nina Olson, who had retired last summer after holding the position for 18 years.