Kathy Brenneman hears plenty of taxpayer horror stories in her receptionist’s job at a tax preparation service in Waldorf, Maryland. But this past year, the spiraling crisis at the Internal Revenue Service collided with her personal life as well.
Brenneman had filed an amendment to her 2018 taxes via snail mail, along with a $108 check to pay the balance due, in early March 2020, when the virus that causes COVID-19 was first spreading across America. A few weeks later, as the nation went into lockdown, Congress tasked the IRS with delivering $270 billion in economic impact payments. As the agency struggled to administer the unprecedented program during a pandemic, Brenneman’s tiny tax payment may have gotten lost in the shuffle.
Her check was cashed swiftly, but in June, she got an IRS notice that was dated from April saying that she owed them money.
“My heart dropped,’ Brenneman said. “I’m like, ‘Oh my gosh, what are they coming at me for?’ And then when I realized it was for this payment that they have, I figured, ‘We’ll get it straightened out.’ But then the letters kept coming and coming.”
Brenneman is among millions of taxpayers whose paperwork has been snarled in the IRS backlog that began with last spring’s stimulus checks. The unprecedented burdens placed on the IRS in the past year, combined with a decade of declining funding and a paralyzing pandemic, have given rise to a cascading set of taxpayer headaches. Tax professionals say that for many functions, the IRS has gotten so sclerotic that all they can do is tell their clients to wait and hope their situations get straightened out eventually.
“If you got a penalty or notice, and you’re trying to resolve the issue, it’s literally mission impossible to do that over the phone, even as a practitioner,” said Mishkin Santa, a principal with the Wolf Group, which often works on U.S. tax issues with foreign nationals. “The processing systems of the IRS are failing our taxpayers.”
The IRS logjam is particularly difficult for low-income people who rely on tax refunds and stimulus checks. As of Jan. 29, the agency still hadn’t processed 6.7 million individual returns for the 2019 tax year. That’s a problem for anyone expecting refunds, which will be delayed. But it also means a long wait for the second stimulus payment of $600, which can’t be sent automatically unless a 2019 tax return has been processed. On Jan. 30, the IRS was still processing 4.6 million cases that involve amended returns and other special requests. Meanwhile, low-income filers have less access to help; as of Feb. 1, 78 out of the IRS’ 358 taxpayer assistance centers were closed.
After receiving the April letter, Brenneman called the IRS right away, and was told that the office was so backed up that her payment could take months to be processed, so she put it out of her head. In late December, another notice arrived. She called again, and after hours on hold, a representative told her to fax a copy of the check. Brenneman didn’t have a fax machine at home, so she couldn’t. Soon after, a third notice arrived. “You must pay your balance immediately or we will levy (seize) your property,” it threatened.
Fortunately for Brenneman, she had colleagues to turn to for help in filing a collection appeal, which is still pending. But taxpayers calling her office have underscored what a nightmare many of them have faced. “I’m right there in the same boat with you,” Brenneman said she tells them.
The IRS’ challenges began more than a decade ago following steep congressional budget cuts pushed by Republicans who objected to the agency’s role in administering the Affordable Care Act. Operating under a hiring freeze, the IRS has seen its workforce fall in size by 22% since 2010, to 73,554 full-time equivalent employees in 2019. In 2013 and 2019, government shutdowns ground operations to a halt, forcing the agency to spend the rest of each year catching up. All of that slowed the implementation of new software systems that could have made more processes paperless and automated.
To make matters worse, in the middle of the 2020 tax filing season Congress directed the IRS to distribute stimulus checks to 160 million Americans. The agency’s processing centers were shut down for months, as envelopes piled up in trailers — many of them holding returns from people who don’t normally file taxes but needed to do so in order to claim their $1,200 payments. In late January, the IRS said that all the backlogged mail had been opened; but that didn’t mean it had been processed. Meanwhile, the agency revived its collections process after having shut it down early in the pandemic, threatening to seize the assets of some taxpayers, like Brenneman, who had done everything they were supposed to do.
“It seemed like it might have been a better decision to hold off on enforced collection and put [the IRS’] resources towards catching up on the mail,” said Keith Fogg, who started a tax clinic at Harvard after working for 30 years in the IRS chief counsel’s office. He did note that the IRS was in a difficult position, since processing and collection are done by different people in different places, making it hard to reallocate staff.
The IRS did not respond to detailed questions from ProPublica. On its website, the agency advises patience. “Other than responding to any requests for information promptly, there’s no action you can take,” the page reads. “We’re working hard to get through the backlog. Please don’t file a second tax return or contact the IRS about the status of your return.”
The problems caused by the pileup can play out in many ways.
The most common situation, according to tax preparers and attorneys, occurs when either a check is cashed but doesn’t get applied to the taxpayer’s account, or a return is processed while the check sits unopened in a separate pile of mail. Either of those cases can trigger a past-due letter that may then escalate into a notice that a bank account will be levied. For those on Social Security retirement or disability benefits, the government can garnish their income to cover the obligation.
Katherine Guerra, who runs the low-income taxpayer clinic at the Legal Aid Service of Broward County in south Florida, said this can be especially nettlesome for clients on special payment plans, which require them to stay current on their taxes for at least five years.
“We have filed those tax returns, everything is at the IRS, and because the mail is so backlogged, it’s not even on their account,” Guerra said. Complicating matters, notices from the IRS are themselves taking weeks to arrive, shortening the time a taxpayer has to respond. Guerra now often receives IRS warnings on behalf of her clients long after they were dated because they were mailed late, and IRS examiners haven’t been granting extensions. As a result, she has often found, “we didn’t have 30 days, we have 8 days to respond,” she said. “That’s a little bit of a due process issue.”
According to the IRS’ own Taxpayer Advocate Service, millions of notices were sent months after they were supposed to go out, last summer and again later in the fall. Some, but not all, included inserts pushing back their deadlines. Taxpayer advocates blasted the decision not to pause the notices entirely as soon as it became clear that taxpayers were being left with inadequate time to respond, and Rep. Bill Pascrell, D-N.J., pressed the IRS to make sure no penalties would be assessed on the basis of faulty notices.
“The whole thing is like a shitshow,” said Robert Nassau, who runs the low-income taxpayer clinic at Syracuse University College of Law. “You might get a letter today that’s dated in October. The whole collection apparatus is screwed up, for the time being.”
Sometimes, tax professionals said, low-income clients who paid their taxes on time will send in another check simply because they’re anxious about a balance due notice. Heather Posey, the tax advisor who helped Brenneman, heard from one elderly client after he received a tax lien warning.
“I know the IRS is going to come down on me hard,” Posey recalled her client telling her. “I don’t want them to take anything from my bank account or my house, so I’m just going to pay it.”
So far, tax practitioners say that the IRS hasn’t actually gone ahead and levied many accounts in error. In a recent webinar with the Tax Policy Center, IRS commissioner Charles Rettig said he was asking his examiners to be lenient. “Our managers were trained to get the people to go collect,” Rettig said. “During the pandemic, we had to say, ‘No no, you need to talk to people, you need to understand what's going on.’ It's a shift.”
But dealing with the IRS can still be extremely stressful. And even if you do manage to get someone on the phone, they often can’t help.
Darla Adams is among those whose 2019 return is stuck in IRS purgatory. She and her husband live in upstate New York on about $33,000 a year in Social Security disability and retirement income, leaving little room for luxuries. Each year, they expect at least a $1,000 tax refund. In previous years, if they made a mistake, the IRS quickly sent a letter instructing them how to fix it.
This time, Adams and her husband filed as usual in mid-February of 2020, but no refund arrived. Food delivery and other expenses were piling up, as the couple sheltered in a borrowed RV to avoid contracting COVID-19. After extensive sleuthing and hours on the phone, she learned that the IRS had pulled her return for a review because of some kind of error. When this had happened in previous years, she had gotten a letter identifying the problem with her forms. But this time she received nothing, and the IRS representative she reached couldn’t say anything more.
Adams sought help from her congressional representative’s office, which yielded nothing. Then she found Syracuse University’s low-income taxpayer clinic, which brought her case to the attention of the Taxpayer Advocate Service. Finally, in early November, her advocate connected with an IRS examiner.
“They still said they couldn’t send a check because there’s a processing error,” Adams recalled. “But they said, ‘We are so backed up, we have not even sent letters saying, “Yeah, we have this.”’ Because from the beginning, I was just trying to find out if I made a math error.” She still hasn’t received any correspondence from the IRS, even though she figured out the problem is likely that she filed the wrong form for her health insurance coverage. Meanwhile, she is holding off on expenses like new eyeglasses and co-pays for the dentist.
Although Adams can claim the second round of economic impact payments as a “recovery rebate credit” on her 2020 taxes, that won’t work for everyone. When payments are delivered automatically to those whose 2019 taxes have been processed, the IRS can’t deduct other money a taxpayer owes to the federal government, except for child support. However, when they are claimed as credits on 2020 taxes — which will happen to millions of people simply because the IRS is behind in processing returns — all of those debts will be subtracted from the credit given.
That’s disappointing for the taxpayer, and also undermines the effectiveness of what was supposed to be an immediate stimulus measure, since people won’t receive the full $600 per person. The Taxpayer Advocate Service has said that the IRS could refrain from docking the credits to account for other outstanding debts, but so far the agency has not committed to doing so.
The IRS backlog has even made it harder for accountants to intervene on clients’ behalf. The office that processes applications for powers of attorney shut down early in the pandemic, and when it reopened, it still moved slowly. Even after the IRS allowed paperwork to be submitted electronically, tax practitioners say, it can still take weeks to get approved to manage their clients’ accounts.
The problems may not dissipate this year. The IRS has already said it wouldn’t start processing 2020 returns until Feb. 12, two weeks later than usual. A new batch of stimulus checks, which the Biden administration is hashing out with Congress, could throw yet another wrench into filing season.
Jennifer Gardiner, who runs the low-income tax clinic at Legal Aid of Arkansas, said she gets exhausted even thinking about it.
“I almost fainted,” she said of hearing about Biden’s plan for more stimulus checks. “How can we handle the third round? Oh my God, this has been so much work for us, and for the IRS. You’ve got to think of each one of these as a new set of problems.”