The Internal Revenue Service (IRS) is expected to have another challenging year processing returns, given an anticipated uptick in audits of refundable credits like the Advance Child Tax Credit. The best advice? File as early as possible, says a tax law expert at Washington University in St. Louis.
“Taxpayers are going to be navigating with an overburdened — and often unresponsive — IRS this filing season,” said Sarah Narkiewicz, director of the School of Law’s Low Income Taxpayer Clinic, which provides free representation and advice to low-income St. Louis-area taxpayers who are in a controversy with the IRS.
“The IRS answered only about 11% of all telephone calls last year, and the callers were often on hold for hours at a time,” she said.
The system can place a surprising burden on low-income taxpayers. “The IRS frequently audits low-income taxpayers,” Narkiewicz said. “In fact, low-income taxpayers are audited at about the same rate as the top 1% of taxpayers by income.”
Narkiewicz noted that many of the most vulnerable taxpayers simply do not have the luxury of remaining on hold with the IRS or calling back several times.
She has advice for all taxpayers during what will be a difficult tax season.
- “With the Advance Child Tax Credit (CTC) payments, people will need to reconcile what they received in 2021 with the full credit that they are due. To do this, they can refer to Letter 6419 that the IRS sent out to eligible taxpayers or they can create an account on irs.gov.”
- “The IRS is still processing millions of returns from 2020. If you are due a refund, the best strategy is to file electronically and include direct deposit information. Paper returns should only be used as a last resort.”
- “Generally if you have a balance due, the IRS has already sent you many notices. However, in some cases, such as identity theft, people only find out that they have a balance due when their expected refund is applied to that balance due.”
- “While the difficulty in the IRS processing returns will not affect your ability to file, it could delay processing times. Paper-filed returns and amended returns are very likely to encounter delayed processing.”
- “The IRS will notice if a taxpayer files late. If a taxpayer does file late, they are subject to failure-to-file and failure-to-pay penalties, which can be substantial.”
- “Taxpayers who itemize can deduct at home COVID-19 testing kits and personal protective equipment if used primarily for preventing the spread of COVID-19 and not covered by insurance or reimbursed under their HSA, MSA, or FSA accounts. To be deductible, the total eligible medical and dental expenses must exceed 7.5% of their adjusted gross income.”
- “It is possible that a parent receiving Child Tax Credit advances may have been overpaid and could end up having to pay back a portion of the money received if their income exceeds a certain threshold.”
- “It is possible that student loans forgiven during the pandemic may not be taxable. However, the rules are complicated, and taxpayers should consult with their tax preparer to determine if they qualify.”
About the Low Income Taxpayer Clinic at Washington University
The Low Income Taxpayer Clinic at Washington University provides free assistance to low-income taxpayers in disputes with the Internal Revenue Service while providing law students the opportunity to develop lawyering skills. Since 2014, more than 140 student attorneys have participated in the clinic and provided 36,000 hours of free legal services to low-income and English-as-a-second-language taxpayers, primarily in eastern Missouri and southern Illinois. LITC faculty, staff and volunteer attorneys have dedicated over 25,000 hours to clinic-related activities, over 5,600 of which were volunteer hours. Student attorneys, in collaboration with LITC faculty, have represented or consulted with over 500 taxpayers, secured over $125,000 in federal refunds, and corrected or compromised over $1.5 million in federal tax liabilities, penalties and interest.