Already, IRS Miscues Are Making a Complicated Tax Filing Season More Complicated

Tax filing season has now begun, and with it comes all the usual headaches of filing season. But this year there are a few new challenges for taxpayers to grapple with — and the IRS isn’t doing them any favors.

I’ve written a few times about downsides of the advance Child Tax Credit (CTC), which paid out half the value of this year’s expanded CTC to taxpayers on a monthly basis. In order to do that, the IRS determined eligibility based on previous years’ tax returns. That will work for many taxpayers, but a substantial number will have to reconcile changes in their eligibility for the credit come April.

There’s a few reasons a taxpayer could have been eligible for the credit in 2020 but not 2021. Taxpayers who lost a job due to lockdowns in 2020 but then found employment as the economy adjusted may now exceed the income threshold. Divorced parents also often alternate claiming their child as a dependent — consequently, a divorcee who claimed a dependent in 2020 may not do so in 2021, leaving them ineligible for the CTC.

Taxpayers who received advance payments they are ineligible for will be expected to pay them back this filing season. Opting out was an option, but it required a fair amount of hassle and going through a private company the IRS has contracted with that has some questionable data privacy practices

Compared to 59 million American taxpayers who received an advance CTC payment, just 1 million opted out. It’s likely that more than just 2 percent of taxpayers receiving the advance CTC saw a change in their eligibility, and some of those who did opt out may have just preferred the lump sum.

That’s all enough hassle for CTC-eligible taxpayers, but the IRS has found a way to make things worse. Politico reports that many of the notices mailed to taxpayers detailing how much they received in advance CTC payments the previous year contain the wrong amount. At least hundreds of thousands of notices contain the wrong information, but it could be in the millions.

That’s a big deal — taxpayers are meant to use the information on these notices when they file their taxes this year, and many may simply trust that the IRS got the number right, even if it means their tax refund is lower than it should be. But even those who notice that IRS’s data is wrong are in for a rough time.

The IRS is already in bad shape this tax filing season. When the IRS suspects that a return has a “math error,” it automatically adjusts the return and sends out a notice. The taxpayer can then either accept the correction or attempt to contact the IRS to resolve the issue. Emphasis on “attempt”: just 9 to 19 percent of calls to the IRS related to “math error” disputes are being answered by the IRS. That’s partially because the number of “math error” notices sent out last year jumped from 700,000 in 2019 to 13 million last year.

It’s not just math error notices that have the IRS swamped. As tax filing season opens for this year, the IRS isn’t done with last year yet — the IRS still has six million unprocessed returns from last year. 

In other words, you might be able to look in your bank account and see exactly how much money you received in advance CTC payments from the IRS. But good luck speaking to a human at the IRS to correct their faulty numbers.

That this kind of disaster is unfolding as Congress continues to mull a massive boost in IRS enforcement funding shows just how far off the priorities are in Washington. Taxpayer services may not show up as a positive on budget sheets, but taxpayers have a right to be able to resolve disputes with the IRS in a timely manner. Unfortunately, the Build Back Better Act would do next to nothing to improve taxpayer services.

Rather than coming up with new tools to snoop on taxpayers, the IRS needs to focus on getting its own house in order.