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 greatest problem, which will definitely proceed all through 2022. Taxpayers and tax preparers may also help velocity up processing by e-filing returns, requesting direct deposit for refunds, and triple checking for errors. It’s essential to examine 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 Youngster 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 acquired in 2021), 5.1 million paper and digital returns suspended for handbook processing, 3.7 million unprocessed amended returns, and seven.3 million items of correspondence and different varieties submitted by taxpayers. Lots of the unprocessed return submissions date again to no less than April 2021 and tens of millions of taxpayers are nonetheless ready for his or her refunds, with some taxpayers ready so long as a yr. For the newest data on the standing of return processing, see the IRS updates.
Keep away from Delays and Transcription Errors By E-Submitting
The IRS usually processes paper returns on a first-in, first-out foundation. Subsequently, taxpayers who file paper returns should look forward to 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 info from the return line by line, quantity by quantity, and this course of introduces errors. Final yr, IRS workers made errors on about 22 % 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 handbook transcription errors related to paper return processing. If no errors are detected, the e-filed return sails although the automated evaluation course of and any associated refund will normally be paid inside 21 days.
So why do taxpayers proceed to paper file returns?
Some taxpayers could not have entry to the web, a pc or sensible cellphone, and others could merely want to paper file. As well as, sure varieties or schedules can’t be e-filed. Many taxpayers have indicated they imagine that submitting by paper is safer. Whereas this concern is actually comprehensible, the IRS has sturdy safeguards in place to make e-filing a secure and safe choice. In truth, 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 assist e-filing some IRS varieties. Different taxpayers and preparers try and 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 after they try and transmit the return electronically, and sadly, they might not perceive the explanation. 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 stop fraud.
Final yr, the highest purpose 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 yr return or present a self-select PIN. If the taxpayer or preparer used the identical business software program to arrange the prior yr return, the business tax return preparation software program sometimes supplies the prior yr AGI. If a taxpayer makes use of a software program program for the primary time or used a unique software program program than the earlier yr, they should enter the prior AGI or PIN data manually. If the AGI quantity or PIN doesn’t match IRS information, the return just isn’t accepted by the IRS for e-filing.
Final yr, because 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 file 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 easy methods to 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. Nonetheless, 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 data it was not broadly distributed or understood.
How one can 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 Youngster Tax Credit score fee or third Financial Affect Fee.
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 usually 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 way of the IP PIN as a substitute of requiring the prior yr AGI or self-select PIN.
Conclusion
In my 2021 annual report, I implored the IRS to handle the limitations taxpayers face after they need to e-file their return, particularly when the rejection is as a result of incapability 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 scale back sure e-file rejections by educating taxpayers and preparers. When taxpayers and preparers try and e-file however the return is rejected as a result of it broke a number of MeF enterprise guidelines, the best method to talk with them is to offer clear warnings of potential points by way 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 newest steerage on easy methods to deal with an e-file rejection so they might take corrective motion and file electronically.
