IRS Continues to Struggle

The Treasury Inspector General for Tax Administration (TIGTA) recently issued an interim report on the IRS’s 2021 filing season, including information related to the impact of the COVID-19 pandemic. The primary objective was to evaluate whether the IRS processed individual paper and electronically filed tax returns during the 2021 filing season, including the processing of backlogged tax returns applicable to the 2020 tax year, in a timely and accurate fashion. Guess what? TIGTA’s findings were not good…and not all of it was pandemic-related. The interim report noted the following:

• Over 8.3 million individual tax returns and transactions were left to be processed at the end of 2020. This represented a 1,200% increase in the paper-filed return inventory that was carried into the 2021 filing season.
• The IRS began accepting and processing individual tax returns approximately two weeks later than the prior filing season due to the enactment of The Consolidated Appropriations Act, 2021, which was signed into law in late December.
• Further legislation signed into law in 2021, such as the American Rescue Plan Act, led to even more problems.
• Insufficient staffing continues to be an overwhelming issue. As of early March, there were over 4,400 submission processing jobs that were either unfilled or held by employees who aren’t currently working for a variety of reasons.
• The IRS is also operating with poor technology. Over 40% of the copiers and printers for processing staff were unusable. Others were broken but were still functioning.

So you may be wondering, “why we are blogging on the subject?” The reason is two-fold:

1. President Biden’s proposed American Families Plan would add approximately $80 billion to the IRS budget over the next ten years, with the ultimate goal of improving enforcement and increasing audits of high-income people. While many in the real estate and private equity industries do not like the American Families Plan proposal (and for good reason, as the plan is projected to hit these industries pretty hard), it’s not hard to get behind giving the IRS more, or even, adequate resources to do their job.

2. Real estate industry professionals and investors were presented with the opportunity to file net operating loss carryback claims as a result of the Coronavirus Aid, Relief and Economic Security (CARES) Act. If you recall, the CARES Act permitted net operating losses from the 2018, 2019, and 2020 tax years to be carried back five tax years (beginning with the earliest year first). The CARES Act also suspended the 80% of taxable income limitation through the 2020 tax year. Many of those who filed net operating loss carryback claims in 2020 are still waiting on their tentative refunds, and are now subject to tax on income that would have been otherwise sucked up by a net operating loss. Not fair!

Fund the IRS, Mr. President!

Sources: Treasury Inspector General, Accounting Today, Bloomberg Tax