The IRS has warned that this could be a banner tax-filing season for problems. Clients should realize that this is a not just another overstated warning from a government agency.
“The IRS mess will impact you personally. Be ready. Be patient,” said Benjamin Bohlmann, a CPA and partner in the Miami office of Friedman LLP.
Some of the problems the IRS has been having include difficulty "reconciling advance monthly child tax credit payments and economic impact payments. Early reports indicate some of the letters reporting these advanced payments are incorrect," said Lisa Cappiello, director in the Personal Wealth Advisors Group at Eisner Amper in New York.
The 2021 tax filing season included exceptionally long hold times for speaking with IRS customer service as well as technical glitches on the IRS “Where’s My Refund” website, Cappiello noted.
“The 2022 tax filing season will be no different,” she said.
The IRS has said it has a backlog of about 10 million tax returns from last year.
“The Taxpayer Advocate Service, set up to help taxpayers with their disputes with the IRS, is turning away cases because of a record number of submissions," Bohlmann said.
“Wealthy taxpayers face tough issues today more than ever,” he added. “The tax law grows in complexity, producing returns jammed with hundreds of pages of forms, schedules and attachments. And all that information comes from more and more sources—employers, health insurance providers, cryptocurrency exchanges, brokerage houses, donor advised funds, publicly traded limited partnerships ... the list goes on.”
“Many high-net-worth individuals have investments that are reported on Schedule K-1, which are often received after April 15th—requiring ... an extension of time to file,” Cappiello said.
Wealthy taxpayers are generally also at higher risk of audit, said Derek Wilton, senior advisor at Moneta in St. Louis. “Given the current backlog and staffing shortages, this can lead to painful delays in having any IRS notice resolved. ... If you receive an IRS notice, you should unfortunately be prepared to potentially spend a lot of time and energy resolving the issue.” Providing a tax preparer with power of attorney allows them a direct line of communication with the IRS for a client, he added.
“Practitioners are tired,” said David Levi, senior managing director at CBIZ MHM in Minneapolis. “We’ve had two filing seasons with extended deadlines, often inaccessible clients and significant tax changes."