IRS disruptions have yet to disrupt tax filing and refund distribution, according to tax specialists.
The Tumultuous IRS:
The Internal Revenue Service (IRS) has been in the midst of turbulence since members of the Department of Government Efficiency embedded within the agency during tax filing season - the IRS' busiest time of year. Yet, fortunately, the chaos hasn't derailed tax filing and refund processing, tax professionals informed CNN. But it has postponed other crucial issues for taxpayers and potentially harms the U.S. treasury.
Key top executives, including Commissioner Danny Werfel and his successors, have departed from the IRS in the past seven weeks. Approximately 6,700 probationary employees were let go in February, but they might regain their positions due to a preliminary federal judge's injunction. Almost 5,000 employees accepted a voluntary resignation offer from the Trump administration, and around 6,800 more may lose their jobs in May, based on a draft plan for a reduction in force.
Concerns about disruptions to the tax filing process have been expressed due to the DOGE's attempts to gain exceptional access to IRS data systems during tax filing season. However, from talks with certified public accountants (CPAs) and enrolled agents, it appears that the electronic filing process has been operating smoothly thus far.
CPAs and enrolled agents reported that they've been able to address the IRS with questions, submit clients' returns electronically, and obtain timely refunds for their clients. Mark Koziel, CEO of the American Institute of Certified Public Accountants, stated, "So far, it seems to be business as usual."
Nevertheless, some delays have manifested in the handling of clients' compliance disputes and audits. According to CPA Miklos Ringbauer, secretary of the California Society of CPAs, there have been significant challenges setting up installment agreements because of long wait times to get through on the IRS practitioner hotline. David Mellem, an enrolled agent from Wisconsin, has a client whose 2019 refund is being delayed because the IRS records do not reflect his payment yet.
Approval of power of attorney forms for clients has also experienced delays, as it used to take fewer than five days, but now takes up to 30 days. Without power of attorney for their clients, they cannot communicate with the IRS to resolve cases in which the agency may claim that their clients underreported their income or owe back taxes.
Werfel has warned that further staff cuts could impact taxpayer services and affect interactions with the IRS on routine matters. Deepening staff cuts could reduce revenue intake overall. John Koskinen, former IRS Commissioner, stressed, "If you're attempting to handle the deficit, the last thing you'd want to do is meddle with the IRS. It is the government's revenue-producing arm."
Where the Issues Are Arising
Delays in addressing compliance disputes and audits can be attributed to factors like funding shortages and staff reductions. More targeted layoffs have affected the collection side compared to the taxpayer services side, causing delays in resolving clients' disputes and setting up payment plans for prior year taxes.
Possible Impact on Tax Return Statistics:
According to the IRS' weekly filing statistics, there has been a 2% decrease in the number of returns received and processed through March 7 compared to the same period last year. However, over 43.6 million refunds have been issued, representing a 1.5% increase compared to the same period in the previous year. The average refund value is up nearly 6% at $3,324.
- The IRS, faced with staff reductions and funding shortages, has agreed to postpone certain crucial issues for taxpayers, which might include business-related disputes and audits.
- The ongoing layoffs within the IRS, particularly on the collection side, may soon impact the average taxpayer, as delays in resolving compliance disputes and setting up payment plans could lead to a higher average refund value.
- If the average refund value continues to increase, as it has nearly 6% compared to the same period last year, it could reflect a trend where taxpayers are receiving more money back from the IRS, potentially due to a slower processing time leading to fewer potential adjustments or collections.
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