IRS Processing Times Are Frustrating...

If you have tried to contact the IRS recently, you are probably aware of the challenges of resolving an outstanding issue. Due to lack of funding, understaffing, CoVid backlogs, and many other factors, resolving an issue with the IRS is no longer a simple feat. If you try to contact a representative by phone, you will have to wait for hours before, if ever, speaking to someone about the issue (oftentimes the call drops after 2+ hours of hold time). If you respond to a notice by mail, don’t expect to hear from the IRS anytime soon. Many simple issues that were resolved within 3-4 weeks, now take up to 6 months (sometimes more) to receive acknowledgment that a response was received. 

To make things worse, taxpayers are receiving more notices than ever. Automated notices regarding the recovery rebate credit, advanced child tax credit, underreporting of income, account balance issues and math errors seem to be the most prevalent. Some of these are easy enough to verify and no response is needed, but the overall volume of notices is leading to more phone calls, more responses and more unprocessed documents by the IRS.

It seems, this year more than ever, there is a significant lag period between the date a tax payment is made and the date the payment is reflected in the IRS system. It has always taken time for the IRS to update accounts to reflect these payments, but we have recently seen longer delays than normal. We have had numerous clients receive notices for unpaid balances even though they had proof of payment weeks earlier. If this has happened to you, know you are not alone and the problem will, most likely, correct itself once the system catches up. It isn’t a bad idea to contact the IRS to follow up, but that isn’t as easy as it used to be.

Although the IRS has issued unprecedented overtime and has processed almost all individual tax returns that were received in 2021, it still faces a large backlog of unprocessed tax returns (8.2 million returns). Although the IRS has made substantial progress on unprocessed returns, it is still going to take time to resolve this backlog. The IRS has improved its efficiency of processing returns, but, at this point, it will take 6-12 months to process paper-filed returns. You can expect an even longer processing time for amended returns. Even with increased funding from the Inflation Reduction Act, the IRS will not see a majority of its 87,000 new employees for a few years (and that does not account for those employees retiring within that same time).

The IRS also owes interest on any refunds that are not processed within 45 days. Although this is great for taxpayers, the IRS paid $3.3 billion in interest last year, which accounts for 25% of their overall budget. The IRS interest rate has also increased from 3% to 6% throughout 2022, so this is something that will need to be addressed as the IRS budget, although recently receiving $80 billion over 10 years, is still considered vastly underfunded.