COVID-19 challenges at center of National Taxpayer Advocate report.

• Author: Taylor, David

In her first report to Congress, National Taxpayer Advocate Erin Collins identified taxpayer challenges related to the COVID-19 pandemic, the Coronavirus Ad, Relief, and Economic Security (CARES) Act, P.L. 116-136, and the IRS's implementation of the Taxpayer First Act, P.L. 116-25.

Collins was sworn in on March 30, 2020, as the third national taxpayer advocate, in the midst of the COVID-19 pandemic. Prior to her appointment, she was managing director of KPMG's tax controversy practice for the Western region for 20 years, and before that she was an attorney in the IRS Office of Chief Counsel, where she worked for nearly 15 years.

The national taxpayer advocate's report released at mid-calendar year usually identifies the most serious problems encountered by taxpayers and typically assesses the recently completed filing season. Naturally, this year's midyear report focused on the effect of the COVID-19 pandemic, the impact it had on IRS service levels, and the impact the reduced services had on taxpayers. (See the National Taxpayer Advocate Objectives Report to Congress: Fiscal Year 2021, available at tinyurl.com/y8f7bj9b.)

Effect of COVID-19 on IRS operations mid-March to June 30, 2020

The report praises the IRS for acting quickly during the pandemic to postpone filing and other time-sensitive deadlines and to provide broad relief from compliance actions under its People First Initiative. The report also notes the IRS was given the task of disbursing economic impact payments during the pandemic, and despite the IRS's constraints, the Service did an impressive job. The payments authorized by the CARES Act were sent directly to most taxpayers to help defray the financial hardships created by the pandemic.

Taxpayers who filed a 2019 paper return with a refund due may be in for a long wait. The IRS had to suspend the processing of paper tax returns and, as of May 16, estimated it had a backlog of 4.7 million paper returns (id., p. 3). Although the IRS is reopening some of its core operations, it is not clear when it can fully reopen and log all the returns sitting in mail facilities.

Some taxpayers whose returns were mistakenly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds. Refund delays can have a significant financial impact on low-income taxpayers, as those refunds often constitute a significant percentage of their annual household income.

The report says that despite the IRS's efforts...