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Sunday December 5, 2021

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30% Fewer Tax Returns By February 19

The IRS reported that delaying the opening of the 2021 tax return filing season has reduced the number of filed and processed tax returns. For the first week of the filing season, the IRS received 30% fewer returns compared to the same date for the 2020 season. However, the prior season had 26 filing days by February 19, 2020.

As of February 19, 2021, the IRS had received 34.7 million returns and had processed 29.8 million returns. This was well behind the previous year total, due to the shorter filing period. On February 19 of last year, the IRS had processed 48 million returns.

This delay in receiving and processing returns prompted a letter from the House Ways and Means Committee Chair Richard Neal (D-MA) and Rep. Bill Pascrell, Jr. (D-NJ). The letter to IRS Commissioner Charles Rettig noted that only 25% of taxpayer phone calls were being answered. Neal and Pascrell encouraged Rettig to add phone support staff to help increase the number of returns.

Both the number and value of refunds are also down. The dollar value of issued refunds is $48 billion this year, compared with $117 billion on the same date last year.

To encourage prompt filing, the IRS published IR-2021-44 to remind taxpayers there is help through IRS.gov and free tax assistance services.

The IRS Free File program is available to taxpayers with incomes of $72,000 or less. Taxpayers with higher incomes have access to the Free File Fillable Forms. These are electronic versions of the IRS paper forms.

The Free File program is easy to use and enables taxpayers to receive a prompt refund. The IRS issues 9 of 10 refunds in 21 days if the return is filed electronically.

Free File and e-filing also enable taxpayers to make convenient payments. They can pay without fee through an electronic fund withdrawal from their bank account or use Direct Pay.

Members of the armed services can use MilTax to electronically file a federal return. The Department of Defense also provides Military OneSource to assist members of the armed forces. Information on One Source is available at MilitaryOneSource.mil.

The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs provide free help for taxpayers. VITA is available to individuals with incomes of $57,000 or less, persons with disabilities, the elderly and those with limited English proficiency. TCE is available for seniors who are age 60 and older. Last year, over 2.5 million federal tax returns were completed through these programs.

With the COVID-19 pandemic, many volunteers also offer virtual help to taxpayers. The IRS-certified VITA and TCE volunteers can use phone and virtual calls to help taxpayers claim credits such as the Earned Income Tax Credit and the Child Tax Credit.

Taxpayers are reminded that their Economic Impact Payments (EIPs) are not taxable. If you are eligible for an EIP and did not receive the appropriate amount, you may claim the Recovery Rebate Credit on your 2020 tax return.

To find a VITA or TCE site, log on to IRS.gov and use the VITA or TCE Locator Tool.

Choosing a Qualified Tax Professional

The IRS released a Tax Time Guide and urged taxpayers to be careful in choosing a professional tax preparer. The IRS notes, "Even though the vast majority of tax return preparers provide honest, quality service, some cause great harm through fraud, identity theft and other scams every year."

In tax-year 2018, paid tax return preparers submitted approximately one half of income tax returns. Because individuals trust their tax preparer with sensitive personal and financial information, it is important to select a qualified person. The IRS reminds taxpayers, "No matter who prepares it, the accuracy of a tax return is ultimately the responsibility of the taxpayer."

The IRS notes that all paid tax preparers must have a valid Preparer Tax Identification Number (PTIN). There are also multiple characteristics of qualified and capable tax preparers.
  1. Available — Your tax preparer should be available year-round. He or she may be able to answer questions that will arise during the year.
  2. Credentials — A paid tax preparer will usually be an enrolled agent, a CPA or an attorney. He or she should disclose professional organizations and appropriate certifications. The tax professional should also attend continuing education courses.
  3. Background — You should check for disciplinary actions or other reports on your tax preparer. For CPAs, you can check the State Board of Accountancy. Attorneys in good standing are members of a state bar association. For Enrolled Agents, search the IRS.gov website under "verify enrolled agent status."
  4. Fee Structures — You should avoid any tax preparer whose fee is based on a percentage of your refund. It is not appropriate to give tax documents, Social Security numbers or other information to a preparer until he or she agrees to complete your tax return.
  5. Records and Receipts — A good preparer will ask to see all records and receipts. The preparer should determine your total income, deductions, tax credits, and other items. Do not allow a preparer to use a pay stub rather than an IRS Form W-2 to prepare the return.
  6. IRS Audit Representation — Attorneys, CPAs and enrolled agents are permitted to represent their clients before multiple levels of the IRS. Other tax preparers may be limited in their ability to represent you if you are audited by the IRS.
  7. Blank Return — Do not sign a blank return under any circumstances.
  8. Review your Return — You do not need to be a tax expert to review the basics of your tax return. If an item is not clear, ask your tax preparer. The tax refund must be sent to the individual's bank account, not to the account of the tax preparer.
  9. Selecting a Tax Preparer — The IRS has a webpage to assist you — IRS.gov/chooseataxpro. This page explains various qualifications, credentials and shows how to submit a complaint if you believe that the tax preparer is violating these rules.
Editor's Note: The tax season is compressed this year. For this reason, you should start early on your tax return. All tax preparers will face a massive burden during the last four weeks before April 15. If you submit your materials during these last few weeks, it is likely the tax preparer will simply file an extension and complete your tax filing by October 15, 2021.

AICPA Requests March 1 IRS Decision

In a February 23, 2021 letter to the IRS, the American Institute of CPAs (AICPA) requested a filing season decision from the IRS no later than March 1, 2021.

AICPA stated, "The rapid emergence of the Coronavirus pandemic generated never-before uncertainty. With approximately 28.1 million people infected and about 500,000 deaths due to the Coronavirus, there is an ever-growing uneasiness with the uncertainty surrounding the April 15 tax filing deadline.”

On February 18, 2021, eight House Ways and Means Committee Democrats asked IRS Commissioner Charles Rettig to extend the filing season. There is a precedent — the IRS has extended the filing season for the State of Texas. Because of the winter storm and a federal disaster declaration by the Federal Emergency Management Agency (FEMA), in IR-2021-43, the IRS granted Texas residents and businesses until June 15, 2021 to file and pay taxes.

AICPA points out that a June 15 deadline would allow many taxpayers to be vaccinated against COVID-19. This would enable them to meet in-person with their tax preparer and facilitate the preparation of returns.
  1. Certainty on Filing Deadline — AICPA requests a delay in the filing deadline until June 15. The stay-at-home orders and late start for the filing season will make it difficult to complete all the required work by April 15. The June 15 deadline is helpful because 46 states have a June 30 fiscal year and they could conform their system to the IRS decision without changing their fiscal year tax receipts.
  2. Underpayment and Late Payment Penalty Relief — AICPA suggests that taxpayers should be granted underpayment penalty relief if they pay 70% of the tax due for the current year or 70% (90% if adjusted gross income (AGI) exceeds $150,000) of the amount of tax paid in the prior year.
  3. Delay IRS collections — AICPA suggests the IRS should discontinue compliance actions for a period of time. There have been numerous incorrect notices and actions issued because the IRS has still not completed processing all tax returns from tax year 2019.
  4. Expand Temporary e-Signature Relief — On December 11, 2020, the IRS allowed the use of electronic signatures on some tax forms filed by June 30, 2021. AICPA suggests that this expanded e-signing capability should be continued to October 15, 2021.

Applicable Federal Rate of 0.8% for March — Rev. Rul. 2021-5; 2021-10 IRB 1 (16 February 2021)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2021. The AFR under Section 7520 for the month of March is 0.8%. The rates for February of 0.6% or January of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published February 26, 2021
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