The 2022 submitting season is underway and it’s anticipated to be a difficult one for taxpayers, preparers, and the IRS for paper filed returns and correspondence. The IRS has issued steerage offering tips about how taxpayers can keep away from issues, and one vital tip that I can not stress sufficient is that taxpayers ought to make each effort to electronically file (e-file) their returns, particularly throughout this difficult submitting season, as a result of the IRS will first course of the backlog of 2020 paper returns earlier than it begins processing 2021 paper returns.
Paper is the IRS’s kryptonite, and the company is buried in it. Processing paper returns and correspondence stays the company’s largest problem, which will definitely proceed all through 2022. Taxpayers and tax preparers might help pace up processing by e-filing returns, requesting direct deposit for refunds, and triple checking for errors. It’s essential to verify for accuracy when reporting tax objects associated to the next: Types W-2, Types 1099, the Earned Revenue Tax Credit score, the Restoration Rebate Credit score, Advance Little one Tax Credit score, and different refundable credit. As of April 1, 2022, the IRS had 11.4 million unprocessed authentic paper particular person and enterprise returns (together with 3.3 million returns obtained in 2021), 5.1 million paper and digital returns suspended for guide processing, 3.7 million unprocessed amended returns, and seven.3 million items of correspondence and different varieties submitted by taxpayers. Most of the unprocessed return submissions date again to a minimum of April 2021 and tens of millions of taxpayers are nonetheless ready for his or her refunds, with some taxpayers ready so long as a 12 months. For the most recent info on the standing of return processing, see the IRS updates.
Keep away from Delays and Transcription Errors By E-Submitting
The IRS typically processes paper returns on a first-in, first-out foundation. Subsequently, taxpayers who file paper returns should await the IRS to first course of the prevailing backlogged paper returns. When the IRS ultimately processes their paper return, an IRS worker will manually transcribe the information from the return line by line, quantity by quantity, and this course of introduces errors. Final 12 months, IRS staff made errors on about 22 p.c of the paper particular person returns they transcribed, and these transcription errors might set off unwarranted compliance actions.
Taxpayers who e-file their returns keep away from the intense processing delays and guide transcription errors related to paper return processing. If no errors are detected, the e-filed return sails although the automated assessment course of and any associated refund will often be paid inside 21 days.
So why do taxpayers proceed to paper file returns?
Some taxpayers might not have entry to the web, a pc or good telephone, and others might merely want to paper file. As well as, sure varieties or schedules can’t be e-filed. Many taxpayers have indicated they consider that submitting by paper is safer. Whereas this concern is definitely comprehensible, the IRS has sturdy safeguards in place to make e-filing a protected and safe possibility. Actually, paper submitting introduces vital dangers and burdens to taxpayers, together with the avoidable compliance actions related to substantial paper processing delays, transcription errors, and refund supply delays. Thousands and thousands of taxpayers and preparers want to e-file, however are unable to as a result of MeF doesn’t help e-filing some IRS varieties. Different taxpayers and preparers try to e-file, however the IRS Modernized e-File (MeF) system rejects their submissions.
E-File Rejections Result in Paper Submitting of Thousands and thousands of Returns
Many taxpayers and preparers preferring to e-file are unsuccessful once they try to transmit the return electronically, and sadly, they could not perceive the rationale. Principally, the IRS’s system rejects electronically submitted returns in the event that they break a number of of the MeF enterprise guidelines. E-file rejections are supposed to stop extra downstream compliance issues and forestall fraud.
Final 12 months, the highest cause 2020 particular person earnings tax returns have been rejected concerned id verification. The MeF enterprise guidelines require the first taxpayer and the taxpayer’s partner, if relevant, to precisely enter the adjusted gross earnings (AGI) reported on the prior 12 months return or present a self-select PIN. If the taxpayer or preparer used the identical business software program to organize the prior 12 months return, the business tax return preparation software program sometimes offers the prior 12 months AGI. If a taxpayer makes use of a software program program for the primary time or used a special software program program than the earlier 12 months, they should enter the prior AGI or PIN info manually. If the AGI quantity or PIN doesn’t match IRS information, the return isn’t accepted by the IRS for e-filing.
Final 12 months, on account of the stock backlog, many 2019 tax returns weren’t but processed by the point the taxpayer tried to e-file their 2020 tax return. If the IRS’s system didn’t have a document of the AGI reported as a result of unprocessed 2019 return, it precipitated the e-filed 2020 return to journey the MeF enterprise rule(s) and prevented the e-filing. These e-file rejections might have been prevented if taxpayers and preparers understood the workaround on how you can repair the issue. As soon as the difficulty surfaced, the IRS supplied steerage that taxpayers with unprocessed 2019 returns ought to have entered “0” as their 2019 AGI. Nevertheless, many return preparers and taxpayers have been unaware of the steerage on the time of submitting, didn’t enter “0,” and needed to file a paper 2020 tax return after the IRS rejected the e-file try. Though the IRS’s web site included this key info it was not extensively distributed or understood.
Keep away from an E-File Rejection if Your 2020 Return Is Nonetheless Unprocessed or You Used the Non-Filer Portal in 2021
As soon as once more, the IRS has issued steerage for the 2022 submitting season, instructing taxpayers and preparers what they should do to keep away from an e-file rejection.
Particularly, the IRS is instructing taxpayers and preparers that they need to enter $0 (zero {dollars}) for the 2020 AGI if the 2020 tax return has not but been processed. As well as, the IRS is instructing taxpayers to enter $1 because the 2020 AGI in the event that they used the Non-Filer portal in 2021 to register for an advance Little one Tax Credit score fee or third Financial Impression Cost.
Taxpayers and preparers can decide the standing of their 2020 return by accessing the next IRS purposes: (1) the taxpayer’s On-line Account software; (2) time allowing, the Get Transcript by Mail software (it typically takes 5 to 10 calendar days to obtain the transcript); or (3) The place’s My Refund? software in case your 2020 return claimed a refund and also you filed on or after July 1, 2021. All three purposes will help in figuring out if the taxpayer’s 2020 return has been processed.
Most significantly, taxpayers can keep away from this id verification e-file rejection altogether by acquiring an Id Safety (IP) PIN earlier than e-filing their 2021 return. If the taxpayer has an IP PIN, the IRS will confirm the taxpayer’s id by means of the IP PIN as a substitute of requiring the prior 12 months AGI or self-select PIN.
Conclusion
In my 2021 annual report, I implored the IRS to deal with the limitations taxpayers face once they wish to e-file their return, particularly when the rejection is as a result of lack of ability to incorporate an IRS required type or schedule with the return. To cut back the burden imposed on taxpayers and the IRS, the IRS ought to discover the way it can decrease the speed of incidence of e-file rejections. The IRS might be able to cut back sure e-file rejections by educating taxpayers and preparers. When taxpayers and preparers try to e-file however the return is rejected as a result of it broke a number of MeF enterprise guidelines, the simplest strategy to talk with them is to offer clear warnings of potential points by means of the tax return preparation software program merchandise. Partnership with the software program trade is essential to making sure that taxpayers and preparers obtain the latest steerage on how you can tackle an e-file rejection so they could take corrective motion and file electronically.
