IRS audit letter and cash

Recently, John Sterbick attended a series of IRS tax seminars presented annually by a noted expert on the IRS as an organization and on the federal tax code that are specifically targeted to help IRS tax professionals like Mr. Sterbick remain current with the state of the agency and federal tax law. Mr. Sterbick attends these seminars each year and has done so for many consecutive years.

The first session on the first day was a report on the current state of the IRS. Like any other large business or government organization, COVID-19 safety requirements forced the IRS to temporarily interrupt and reduce services. At the same time, the IRS took steps to enable individual IRS employees to work remotely. Unfortunately, that led to a 35-day IRS shut down that put the agency behind in its responses to taxpayers and incoming material processing.

The National Tax Association (NTA) reported: “The IRS is stretched to its breaking point.” According to the NTA, the IRS recently described its backlog this way:

  • 5 million pieces of mail not sorted/processed
  • 80,000 responses to Earned Income Tax Credit (EITC) audits not addressed
  • The IRS’ National Distribution Center had tens of thousands of unprocessed orders
  • Return processing inventory backlogged for months
  • Accounts Management phone lines
    • LOS: 36.8%
    • Average wait time: 32 mins
    • ACS [A/Bal Due phone lines A. LOS: 12. 8%
    • Average wait time: 93 mins
    • Within a week, LOS was 6.7%
  • The rate that the IRS processed returns processing declined by 25.8%

What Do these Statistics Mean to Me?

Within a very short period after the IRS adapted and changed policies in order to remain open during the COVID-19 crisis, significant declines in the levels of service offered by the agencies were reported. This is not a criticism; such an interruption should be expected after such a nationwide life-threatening pandemic was detected by health authorities and calls for extreme caution and new operational safety measures were issued for government, private industry, and individual citizens alike.

However, citizens received much slower responses from the IRS, including those who needed help with garnishments, establishing payment plans, evaluating offers in compromise, penalty relief, and other actions that the IRS can take to help citizens retain the income and assets that they need to live. As we shall see, the situation became even direr later.

Before COVID-19 Struck: Congress Passes the Taxpayer First Act

The Taxpayer First Act (Pub. L. No. I 16-2 5 issued on July 1, 2019) was intended to address the “broken IRS.” The Act included a reduction in personnel and “reduced” funding. The Act required the IRS to develop and implement four strategic plans:

  • Develop a comprehensive taxpayer service strategy
    • The strategy was to include taxpayer education and assistance
  • Redesign the IRS’ organizational structure
    • The goal of the new design was to create a “one-stop” experience for taxpayers
  • Develop and deliver comprehensive IRS employee training
    • Ensure that IRS employees were aware of and acted to protect taxpayer rights
  • Meet IRS information technology needs

2020 was to be the year of the Taxpayer First Act (TFA).

The fourth point – the requirement to meet IRS information technology needs – is vital to understanding the current state of the IRS and its ability to be responsive to individual taxpayers without expert representation.
IRS technology continues to lag the state of the art for years. Alarmingly, the IRS has no plan for updating/replacing old systems. Here are some of the critical technology problems facing the IRS today:

  • The IRS has no single “integrated” computer system
    • At last count, the IRS has at least 669 separate computer systems, very few of which are tied together
    • At least 231 (35%) of the IRS’ computer systems are considered “legacy systems”. According to the Inspector General of the IRS, a “legacy system” is an information system that may be based on outdated technologies but is critical to day-to-day operations
    • The IRS doesn’t know the status of at least 288 other systems in its information technology infrastructure

Critical Problems with Modernizing the IRS’ IT Infrastructure

In addition to not having accurate information about the status of all the IRS computer systems, the IRS has no idea about how much specific systems and programs cost! The IRS’ legacy systems are largely unsupported by vendors, and current IRS employees don’t have the right skills for them. Young graduates with a modern computer science education would likely neither have the skills nor the interest in starting their careers in such an obsolete environment.

Unfortunately, this is not new. IRS modernization efforts have started and stopped more than once. Given that presidential and congressional elections mean that priorities change according to the prevailing political environment, the IRS must deal with funding fluctuations that affect the execution of any long-term plan. Changes in Congressional priorities mean that IRS personnel are pulled from IT projects to deal with annual legislative changes.

What Did Congress Intend the Taxpayer First Act to Achieve?

Simply put, Congress intended to modernize and enhance the IRS’ ability to perform its functions, and that relied heavily on implementing better technology to serve taxpayers.

According to the “Integrated Modernization Business Plan” released in April 2019, the IRS was to develop and implement a six-year plan to become fully modernized in two 3-year phases. The budget estimate for the modernization program totaled $2.3—$2.7 billion over six years.

In phase 1 of the plan, the IRS was to

  • enhance data processing for information and tax returns,
  • decommission and consolidate up to 60 case management systems, and
  • develop more flexible and scalable technology platforms

In phase 2 of the plan, the IRS would

  • provide system-wide access to taxpayer account details,
  • enhance information returns processing and matching, and
  • establish “real-time” data processing

We are still dealing with COVID-19, and so is the IRS. IRS employees are stretched thin, working remotely with obsolete systems. Congress passed and continues to debate COVID-19 relief legislation that affects tax law and IRS policies. Just two pieces of legislation passed in 2019 illustrate how much change the IRS is experiencing:

  • Congress first passed the Families First Coronavirus Response Act (Pub. L. 116-136)
  • Congress then passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Pub. L. I 16- 15 9). The CARES act contains
    • economic impact payments for individuals
    • PPP Loans for small businesses
    • relaxed Small Business Administration Economic Injury Disaster Loans (SBA EIDL grants and loans)

So, What Does All This Mean to Me?

With a new administration and a new Congress taking office next year, we should expect more changes to both policies and the IRS tax code. We should expect that the complexities of the law to continue to be difficult for individuals to understand and to act on without making potentially serious mistakes. Moreover, for individuals with IRS tax problems, having the guidance and representation of a widely acknowledged expert in IRS law and tax policies with years of experience and relationships with key contacts to help streamline delays is more important than ever, especially given the very difficult times that we are all facing today.

If All This Seems Confusing or Too Complicated, Please Call Us for Help

IRS tax problems or long neglected debts can be complex and overwhelming. The team at the Law Offices of John A. Sterbick may be able to help you understand your situation; We can certainly help you by discussing certain trade-offs and options concerning your situation with your debts, the IRS, and bankruptcy.

The Sterbick team does our best to give each client the best, unbiased advice that we can provide in every case. We do not automatically recommend bankruptcy; we tailor our advice to each person’s circumstances. We would never advise a client to take actions that would worsen their circumstances and increase their debts. Our goal is always to design a plan and carefully explain the plan to our client in order to help our clients work towards rebuilding a sound financial future.

Financial stress is not a healthy state, and it does not cost you anything to check out your options. Please contact my office to make an appointment for a free, confidential, personal consultation to review your circumstances together.