The IRS is cleaning up its act. It's also cracking down on you.

  • By Karen Hube,
  • Barron's
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As the 2023 tax-filing season kicks off, some taxpayers will find fewer hassles in dealing with the Internal Revenue Service compared with recent years, but most should keep a couple aspirin on hand—expect long waits and a stricter stance on collections.

The IRS has been working on building its services to adequate levels using funds allocated by the Inflation Reduction Act, which was passed in 2022. Some $80 billion will be meted out over 10 years, starting in 2023.

For years the agency has struggled to fulfill its responsibilities due to underfunding. Office closures and temporary tax rule changes during the pandemic worsened the situation, crippling phone services, creating massive backlogs that slowed refunds and driving audit rates to historic lows.

“There have been some improvements lately, such as shorter times on hold, but things are still not back to pre-Covid levels,” says Pamela Dennettt, a partner at Eisner Advisory Group.

Here’s what individual taxpayers can expect this filing season:

Better but spotty phone service

While the IRS aims to improve upon last tax season when 29% of taxpayers calling the main phone line reached a live agent—that was up from about 12% in 2022—most callers who get through will likely be routed through the IRS’s phone tree.

The IRS has built out its automated phone system to answer more taxpayer questions, but whether it helps most taxpayers isn’t known because the IRS doesn’t measure user satisfaction levels, according to the National Taxpayer Advocate Service, which reports on IRS challenges and recommends improvements.

To improve your chance of getting through to a live agent, plan on calling early in the tax season before the filing crush, says Jennifer Mosely, a CPA and senior manager at Moss Adams.

Serious delays for some taxpayers

There is good news for taxpayers whose only concern is filing a 2023 Form 1040 and getting a refund: Massive backlogs of primary tax returns that caused refund delays in recent years have been eliminated.

But there are still big backlogs and long processing delays for taxpayers who file amended tax returns or who are in correspondence with the IRS.

In late October, the IRS was sitting on some 1.9 million amended tax returns and 54.3 million correspondences, compared with 500,000 and 1.9 million respectively at the end of 2019, according to TAS.

Some issues have been dragging on for years, says Bill Smith, national director of tax technical services for CBIZ MHM’s national tax office.

His client had a multimillion-dollar refund in 2018 to apply to 2019 taxes, but the IRS didn’t apply the refund. It demanded payment and exerted pressure by putting a hold on the client’s passport.

“We got them to take the hold off of the passports, but the issue still isn’t resolved—it is still in nightmare land,” Smith says.

Jere Doyle, a senior vice president at BNY Melon, says that a recent simple correspondence with the IRS on behalf of a client dragged on for 240 days.

“In five minutes they could have resolved this, but it took three-quarters of a year,” he says.

The biggest headaches are related to paper amended returns, says Matt Metras, an enrolled agent at MDM Financial Services.

“If you send one by certified mail, it’s not unusual to get a notice from the IRS saying, ‘We see you filed an amended return, but we can’t find it,’” Metras says. “I’d rather have a root canal than have to file a paper amended return.”

The best way to avoid amended returns and minimize the need for IRS correspondence is to file an error-free tax return with all necessary documents and payments, Metras says.

Improved tools at IRS.gov

Online resources have been upgraded on the IRS’s website to enable individual taxpayers to answer questions, track refunds, organize documents and interact with the agency without having to reach a live agent or go through the postal system.

The IRS’s most popular tool, a refund tracker called Where’s My Refund?, has in the past created some confusion, prompting users to call the IRS for clarification. Improvements include more detailed messages, such as that additional information is required before a refund can be issued.

Greater scrutiny and less leniency

The IRS’s heightened enforcement is focused on partnerships with more than $10 million in assets and individuals with more than $1 million in income and more than $250,000 in tax debt.

But taxpayers at any income level could be finding IRS notices in the mail. After suspending collection notices for underpaid taxes in early 2022 as part of pandemic relief, the IRS resumed sending notices this month.

For taxpayers who think a notice was sent in error, a hold can be requested on the payment demand while the taxpayer pulls together evidence.

Several times recently, Mosley’s hold request was denied, she said. For example, one client received a notice, but had an overpayment from the previous year that was supposed to be applied to the subsequent year’s tax to cover it, she says. “The IRS said, ‘No, first pay, then seek a refund.’”

On the other hand, the IRS is easing the blow for some taxpayers by granting about $1 billion in penalty relief on underpayments. Most eligible individual taxpayers earn less than $100,000 a year and owe less than $100,000 for the 2020 and 2021 tax years.

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