COVID’s impact on penalties and IRS services
“It’s like déjà vu all over again.”
— Yogi Berra
In 1989, the IRS commissioner’s Executive Task Force on Civil Penalties indicated that “civil tax penalties should exist for the purpose of encouraging voluntary compliance and not for other purposes.” The AICPA® wholeheartedly agrees, and this sentiment is one reason we advocated in 2020 for lenient positions on penalties and IRS compliance actions. During a pandemic, when many taxpayers and their advisers are struggling with health issues, new child care arrangements, secure remote work arrangements, concerns for the safety of family and friends, and so many other problems, the IRS’ liberal penalty assessments were not encouraging voluntary compliance.
I have not been in the office since March 11, 2020 and would never have thought we would face the same issues more than a year later. But, as the quote from baseball legend Yogi Berra implies, here we are.
The taxpayer and adviser problems I mentioned don’t consider the struggles the IRS faced in 2020. IRS leadership did an amazing job pivoting when faced with a once-in-a-lifetime crisis. However, as we all know, despite its great efforts, service levels tanked. The AICPA’s annual survey of tax practitioners’ experiences with IRS service levels confirmed the obvious. I wrote a detailed blog post about the survey, but some of the results bear repeating:
Overall member satisfaction with IRS services plummeted in 2021 from 35% to 10%.
Another important indicator of service level relates to correspondence processing times. When asked how long it took the IRS to provide a “substantive response” to correspondence — as opposed to a computer-generated acknowledgment — 83% of survey respondents said it took more than 90 days. That number is dramatically up from the 46% response in the prior year.
Every day, we at the AICPA speak to members and hear firsthand about the struggles they’re facing. As news coverage centers on the delta variant and increased hospitalization rates, we are constantly reminded of the effects of the coronavirus pandemic and the need for penalty relief. One CPA from Mississippi told me that about a third of her office was sick with COVID-19 over the last few months. The impact on these tax practitioners and taxpayers reverberates. Another called about a sole practitioner friend who was hospitalized in critical condition. There are so many more of these stories and these are from 2021.
The calls about IRS challenges continue to come in as well — no response to 2020 e-filed returns, no response to 2019 paper returns, delayed powers of attorney, notices of intent to lien or levy that should not have been issued if mailed responses to notices had been processed.
Each CPA is a “canary in the coal mine,” so to speak, and the “miners” have similar observations. In her Objectives Report to Congress submitted June 30, IRS National Taxpayer Advocate Erin Collins said:
The 2021 filing season was the quintessential definition of a perfect storm. No one could have predicted a global pandemic or the lasting and lingering impact on taxpayers, IRS employees and tax administration during the last 15 months. To state the obvious, this filing season has been challenging for tens of millions of taxpayers and anything but normal for the IRS and its employees. The IRS endured challenges associated with the COVID-19 pandemic — its employees endured personal and professional challenges, which resulted in a historically high volume of unanswered telephone calls to its phone assistors and a historically low level of service. Millions of 2019 and 2020 paper returns were delayed, and awaited processing and tens of millions of returns awaited the atypical necessity of manual reviews — most still waiting for processing. Tax legislation was enacted at the beginning of and in the midst of filing season; a third round of stimulus payments was enacted and paid starting in mid-March; and changes were necessary to the IRS’ programming and systems to recalculate unemployment insurance benefits and Advance Premium Tax Credit benefits because of the March legislation. All this occurred while the IRS’ workforce was working remotely or within the constraints of its safety procedures and protocols put in place to protect employees, their families and our local communities.
On Sept. 3, 2021, Rep. Judy Chu, CA-D, introduced the Taxpayer Penalty Protection Act of 2021, H.R. 5155. The AICPA is grateful and commends Rep. Chu for her efforts to assist taxpayers the pandemic affected. H.R. 5155 aligns with the AICPA’s approach. But there’s more the IRS can do administratively. The AICPA submitted a letter to the Department of the Treasury and the IRS in May urging specific penalty relief measures for millions of taxpayers the COVID-19 pandemic affected.
Last year, we asked the IRS to offer a COVID-19 reasonable cause relief, similar to the procedures of first-time abatement (FTA) and generally facilitate the easier adoption of reasonable cause relief. FTA is a wonderful option that we greatly appreciate but its use is only periodically available to particular taxpayers. With so many people sick last year, we believed a “pandemic FTA” was justified. It didn’t happen and, unfortunately, still is needed.
The House Ways and Means Committee began markup on its portion of a reconciliation package Sept. 9. Although not ideal timing — with members busy with the extended filing season and the Jewish holidays beginning — the AICPA initiated a social media campaign on Sept. 7 and 8 to draw congressional attention to the IRS service problems and the need for related penalty relief. Ways and Means members’ concerns can quickly become IRS concerns. We hoped that key members used time during the four-day markup to amplify constituent grievances about the lack of reasonable penalty relief measures.
It is not too late for you to become engaged in this campaign and influence our push on penalty relief, even after the markup. The main objectives are:
Call for penalty relief
Encourage people to share their stories of pandemic-related hardships that have caused penalties (i.e. the reason we need penalty relief)
Tag members of Congress, media and government officials on social media posts
Include our hashtag in all social media posts: #COVIDPenaltyRelief
Tag the AICPA on posts:
Here is a sample post:
The pandemic has caused a lot of personal and economic suffering in our country. Taxpayers need relief from tax penalties now — we ask the @IRS to grant penalty relief. #COVIDPenaltyRelief @AICPA @WSJ @[member of Congress]
Yogi Berra also said: “You’ve got to be very careful if you don’t know where you are going because you might not get there.” We know where the tax administration system should be, we want the IRS viewed as an evolutionary and respected federal agency of the 21st century. The IRS needs extra help to get there during a pandemic, but so do taxpayers and their advisers.