If you feel you have filed more extensions this past filing season than in any of your previous years in practice, you are not alone. Most preparers felt that the 2022 tax season for preparation of 2021 returns was one of their worst yet when it came to filing a high number of extensions.
Several issues contributed to the current state of affairs. The late changes to K-2/K-3 schedules for passthrough entities left preparers with little option but to extend the returns until both the guidance and the forms were ready.
In addition to the extended passthrough returns, the trickle-down effect left partners and shareholders with no choice but to extend their 1040s as well.
Advanced child tax credits, as well as recovery rebate credits, also created confusion. Misreporting of the amounts by the IRS left families confused and digging through old bank statements to find out the actual amounts received.
Unfortunately, in some cases, only requesting transcript copies solved the mystery, and waiting for transcripts cost precious time. But the IRS was clear that misreporting the amounts on the return disclosures would result in delayed refunds.
The IRS Saturday, extra help-desk hours were originally extended through the end of May to aid with the onslaught of call volume the services has been receiving since 2020, however, those have now ended with call center hours returning to normal, non-tax season times.
While the IRS Commissioner announced months ago that huge amounts of team members would be added before the end of the year to address the IRS backlog of return and correspondence processing, the current job market doesn’t line up with the plans to hire. Correspondence is taking over a year to receive back in some cases.
Businesses around the country right now are all struggling to keep staff, offering incentive bonuses everywhere from restaurants to tanning salons to get staff on board. The IRS will be challenged to hire everyone their updated budget allows for before the end of the year, never mind actually addressing their backlog.
Practitioners should be diligent over the summer to address their return backlog as quickly as possible. Communicate with your clients that even if they are waiting for a statement, to send all their other documents over so their returns can be substantially completed.
Practitioners should continue to anticipate long delays with the IRS and with the states when it comes to resolving issues. The best way to stay ahead of the game is to also be diligently preparing returns to avoid as many questions as possible. Make sure estimate and extension payments line up with paperwork and proof of payment, double check the credits that clients are claiming, and the amounts, and communicate in advance with clients that refunds may take longer than normal.