As if the headaches surrounding life in general for the past two years haven’t been enough, processing and staffing issues at the IRS will continue to add more headaches to an already headache inducing process. In theory, taxes should be pretty straight forward. After all, they’re not optional, and as a nation, we’ve had over 100 years to figure this out. But as #taxtwitter will tell you, when you ask the IRS how much you owe, they won’t tell you, but when you tell them how much you owe, they’ll often tell you why you’re wrong. We don’t expect this to get any better for 2022. Here’s why …
IRS Backlogs and lack of staffing
The IRS has an immeasurable backlog of paper filings, and a shortage of people to handle it. Believe it or not, they’re still working on processing 2020 tax returns – yes – 2020. Imagine a scenario where literally millions of tax returns are mailed to an address over the course of six months, and all of the employees who would normally handle the influx are all forced to work from home. That’s exactly what happened from March to September of 2020. This backed up an already overloaded system that then had to face receiving and processing returns received in 2021. Fast forward to today, the backlog is only getting worse. To top things off, it’s virtually impossible to talk to someone at the IRS. The number of hours that tax professionals have spent on hold with the IRS only to be disconnected after a recording tells them due to high call volume, they can’t answer your call is immeasurable. Thus, handling even the most basic of issues has become virtually impossible.
So, what to do?
To the extent possible, do everything electronically. This means filing electronically, paying electronically, and having any refunds direct deposited into your bank account. When it comes to the IRS paper and envelopes are the enemy. You can even set up an online account that will allow you to monitor and make payments, as well as respond to any IRS notices that you may receive. You can also set up an account and provide your tax professional access so that they can assist you with any issues.
As if this wasn’t enough …
There are two new forms that most flow through entities will have to file for 2021. The exciting part is that we can’t file them yet, and we’re still waiting for guidance on how to complete them. The even more exciting part is that unless you have significant foreign activity, they won’t even matter (but we still need to do them). The forms are Schedules K-2 and K-3. The obvious question is, “If I won’t need them, why do you have to do them?” The reason is that the IRS pulled a switcheroo on us. The norm is that a form doesn’t need to be filed unless it’s needed. In this case, the IRS is saying that these forms need to be filed unless you KNOW that they’re NOT needed. They have yet to issue crystal balls that will be able to tell us when they’re not needed.
And to top things off …
These new forms (the K-2 and K-3) will not be able to be e-filed until March for partnerships and June for S Corporations. The result is that if you receive a K1 from a partnership or S Corp, you should probably plan on extending your return.
This is a lot, and it’s confusing, and it’s why we’re here. We always love to hear your thoughts and questions. Please contact us if you have questions about the information outlined above, our seasoned and experienced tax professionals are here to help. You can also learn more about our Tax services by visiting our website.