Taxpayers Will Experience Delays in IRS Processing of Tax Refunds and Quarterly Tax Payments

The Internal Revenue Service (IRS) is holding approximately 29 million tax refunds that need to be processed manually because of the complexities of some of the recent tax laws passed by Congress. The agency’s systems are also overwhelmed and were unable to process many of the delayed quarterly estimated tax payments that were due April 15, despite pleas to delay the payments until May 17 to match the extended filing date.

The recent passage of a number of tax-related COVID-19 relief packages, including the Consolidated Appropriations Act in December and the American Rescue Plan Act in March, required the IRS to send out second and third rounds of Economic Impact Payments to taxpayers. The laws also included provisions requiring the IRS to do “plus-up payments” to provide taxpayers with the maximum amounts of their stimulus payments, as well as take into account expansions in programs like the Earned Income Tax Credit and the Additional Child Tax Credit, along with newer tax credits like the Recovery Rebate Credit.

In addition, the late passage of the Consolidated Appropriations Act, which meant the IRS couldn’t adjust its tax forms and computer systems in time before the start of the filing season to allow for efficient processing of tax returns where taxpayers elected to use their 2019 income for claiming some tax breaks. The IRS instead had to create a manual process for doing corrections of the Recovery Rebate Credit, or to verify a lookback election for using 2019 income vs. 2020 income to calculate the EITC or ACTC. Millions of tax returns now need to be manually processed by the IRS’s Error Resolution System unit, and the IRS is placing those returns in “suspense” until an IRS employee is able to review them in order to verify the 2019 income or the prior Economic Impact Payment.

The IRS also experienced delays last week in its Modernized e-File system when trying to process the quarterly estimated tax payments that the IRS insisted were due April 15, despite the May 17 extension for filing individual tax returns.

The IRS has been facing an array of challenges this tax season from the pandemic, the constantly changing tax laws and the need to send out the second and third rounds of Economic Impact Payments while also preparing for the launch of a new portal for the expanded Child Tax Credit program by July 1. Not only are its computer systems being overwhelmed, but its call centers are as well. That’s affecting the level of service to the point where the majority of calls are going unanswered.

“You hear from taxpayers and congressional offices all the time, but my understanding is that there have been days where if you calculated by looking at the number of calls that were answered and divide it by the number of calls that came in, the level of service was 2 to 3 percent,” said Nina Olson, executive director of the Center for Taxpayer Rights and the former National Taxpayer Advocate, during a webinar last week hosted by the Urban-Brookings Tax Policy Center. “Even by the IRS’s own calculation, where it does the number of calls that are answered, divided by the number of calls that aren’t routed automatically, it’s at 15 percent. With all the attention on enforcement, you can’t have that level of customer service and think that in any way, you’re having a successful filing season.”

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.