This week I’ve had to call the IRS up for several different items. There is good news, bad news, and some ugly news.
The good news: In calling the Practitioner Priority Service (PPS), I’ve gotten through every time! Twice, there was no wait! I was disconnected once after reaching an agent but I called back and was immediately connected to another agent. For practitioners, this is great news and will make our lives easier in Tax Season.
The bad news: The IRS remains slow to respond to obvious issues. For example, the California “Middle Class Tax Rebates” were announced last year. California exempted them from state taxation (which is their right); how would they be treated for federal tax returns? There were (and are) two schools of thought: these are taxable as an accession to wealth or these are not taxable based on the “General Welfare” theory. A ruling from the IRS is due soon. My suspicion is that the IRS will rule that these aren’t taxed–based on politics, not law. (This isn’t just a California issue; several states enacted similar programs in 2022.)
The ugly news: Yesterday, I spoke with an IRS Appeals Officer on a case. We didn’t agree completely on my client’s issues, but we did agree on where to go to move the case forward. (Like almost everyone I have dealt with at the IRS, she was pleasant and helpful.) So why am I putting this in “ugly news?”
The issue is her workload. From everything I’ve seen, Appeals is buried (see below for another example of this). She confirmed this, and noted that over the past three years the number of Appeals Officers has decreased to a point that she thinks it will take five years to rebuild the staffing. (You can’t just hire effective Appeals Officers.) I agree–it will be years before this and other Pandemic-related backlogs are resolved.
Speaking of backlogs, paper remains the IRS’s Achilles heal. Here’s an example impacting a client of mine. An individual self-represented for an audit. That individual lost at the audit, hired me, and I requested an Appeals hearing by certified mail. That request was received timely (we tracked the mailing), and we received a notification that the file was sent to an IRS office. No matter, a Notice of Deficiency was issued so now my client must file a Tax Court petition because of an IRS error. If this ever goes to Tax Court (which isn’t likely–filing the petition will cause the case to be assigned to Appeals), I doubt the court would look favorably at the IRS ignoring its own procedures.
Additionally, yesterday I needed a transcript for a client. I went onto IRS E-Services to download it (I had an authorization sent to the IRS back in 2021) and it failed. Why? Who knows. I show it was successfully faxed–but it went into the ether.
As I noted above, it’s going to take years for the IRS to work its way out of the backlog and staffing issues. This isn’t just for Appeals, but for Exam (audit), collections, and all functions of the IRS. If there’s a budget shutdown or anything else like that, this could delay things even more.