On February 7, 2022 the Treasury Inspector General For Tax Administration (“TIGTA”) issued a report evaluating the IRS’s efforts to close the Fresno California Tax Processing Center and its continued planned closure of the Austin Texas Tax Processing Center.
The IRS entered this filing season with several million original and amended returns filed by individuals and businesses that have not been processed due to challenges of the COVID pandemic. Yet despite the IRS facing a huge backlog, it continues with its September 2016 plan to consolidate Tax Processing Centers to two end-state sites (Kansas City, Missouri, and Ogden, Utah).
The IRS says that this consolidation is warranted because tax return projections show that electronic filing will continue to increase, resulting in decreased paper processing operations at the Tax Processing Centers. As a result, the IRS continues its Tax Processing Center consolidations and will end its Submission Processing operations in Fresno, California, by September 2021 and Austin, Texas, by September 2024. At the end of this consolidation process, two Tax Processing Center locations, Kansas City and Ogden, will remain.
What TIGTA Found –
As of August 2021, TIGTA estimates that the IRS is facing a total staffing deficiency in its Submission Processing function of around 2,598 employees. Although the IRS has several initiatives underway to help address its hiring shortages, to date these approaches have not been successful. Further, the hiring shortfalls have been exacerbated since the COVID pandemic and are resulting in millions of tax returns not being timely processed, refunds not being timely issued, and taxpayers not timely receiving assistance with their tax account issues.
In addition, the transfer of work not directly related to the processing of tax returns further hampers the Submission Processing function’s ability to deliver its core mission of processing tax returns and addressing tax accounts. For example, the Fresno Tax Processing Center transferred work related to three specialty programs to the Kansas City and Ogden Tax Processing Centers, each of which had and continue to have millions of returns not processed and other account work remaining unworked. This specialty program work requires resources which could otherwise be directed to process the backlogged work.
Finally, outdated mail processing equipment is contributing to the loss of millions of dollars in revenue and the inefficient use of limited resources. This places its operations at risk for inefficient and untimely execution of tax return processing. For example, this outdated equipment cannot properly detect remittances. In Calendar Year 2021 alone, the IRS reports $56 million in lost opportunity costs due to untimely check deposits. Yet the cost to replace or rebuild the current equipment is only a fraction of those lost costs, ranging from $360,000 to $650,000.
TIGTA’s Recommendations to IRS
TIGTA made six recommendations for improvements, including that the IRS postpone the closure of the Austin Tax Processing Center until hiring and backlog shortages are addressed.
Here are the recommendations and IRS’ responses …
|#||TIGTA Recommendation||IRS Response|
|1||Allocate adequate funding to support Submission Processing function transition of its clerical staff to the new, higher graded position descriptions.
|The IRS agreed with this recommendation and has submitted a request for approximately $39 million under the Fiscal Year 2024 budget formulation process to provide a permanent increase in annual funding levels that will support the cost of upgrading the positions and maintaining them at the higher level. IRS management is also evaluating options and the associated trade-offs involved to upgrade the position descriptions from existing appropriations. Additionally, management stated that the recent 2.2% increase to the General Schedule Base Pay Scale, plus the adjustment for locality pay, raised a portion of the affected employees above the $15 per hour rate, which should alleviate some of the pressure of competing with outside employers for workers.
|2||Postpone any further steps for closing the Austin Tax Processing Center until hiring shortages and backlogs of work at end-state sites are adequately addressed.
|The IRS disagreed with this recommendation. IRS management stated that the Submission Processing Center Consolidation revalidation is ongoing and a decision on the Austin consolidation will be made once the revalidation is completed. This decision will then be communicated to all Submission Processing employees.
|3||Identify and implement interim solutions that will address the resource constraints currently being placed on the Submission Processing function due its backlog.
|The IRS agreed with this recommendation and plans to continue meeting with stakeholders on a regular basis to identify interim solutions that accommodate resource needs. IRS management also plans to continue pursuing potential opportunities for automation of data entry into the Treasury Financial Crimes Enforcement Network web portal throughout Fiscal Year 2022.
|4||Ensure that timely advancements are made to the digital platform of Forms 3949-A, Information Referral To Report Suspected Tax Law Violations By A Person Or A Business, to develop automatic routing of the forms directly to the business units to alleviate the Submission Processing workload.
|The IRS agreed with this recommendation and plans to identify those capabilities required to support the implementation of automatic routing of Forms 3949-A directly to business units.
|5||Evaluate the placement of USDA transcript work if the IRS does not meet its automation targets or the inventories do not continue to decline as anticipated.
|The IRS agreed with this recommendation. IRS management shares weekly updates with executive leadership to inform them of the program’s status and confirm proper placement of the USDA transcript program. As of September 20, 2021, automation for the USDA program is shown to be fully paperless, and 3,078 counties have suspended mailing Form CCC-941, Commodity Credit Corporation Average Adjusted Gross Income (AGI) Certification and Consent to Disclosure of Tax Information, requests to the IRS. IRS management has also suspended mailing reject notices to the USDA in lieu of electronic delivery. As anticipated, the inventories declined to the point that all electronic USDA inventory is current and timely.
|6||Ensure that efforts to evaluate and purchase updated or new mail opening/sorting technology are timely executed.
|The IRS agreed with this recommendation and plans to take the actions necessary for the evaluation and purchase of a replacement for the equipment used for opening and sorting mail and ensure that those necessary actions are carried out timely. Because this procurement action is dependent on funding and is subject to competing priorities, IRS management will reevaluate continuing actions if implementation is not successful within three years.
An Opportunity For Taxpayers Who Owe The IRS
Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.
As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.
Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2022, taxpayers who expect to owe for 2021 should have their 2021 income tax returns done now so that the 2021 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2021.
Remember that COVID does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.
Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.
The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.
What Should You Do?
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.