IRS RESPONSE TO RECOMMENDATION: ​Currently, the IRS prioritizes the transcription, review and risk assessing of ERC claims for taxpayers who are experiencing financial hardships. Valid ERC claims are processed expeditiously. In addition, the IRS deployed the ERC Voluntary Disclosure Program and claim withdrawal process initiatives to counter questionable claims, further protecting taxpayers with valid claims and ensuring that their claims are prioritized.

CORRECTIVE ACTION: Currently, the IRS prioritizes the transcription, review and risk assessing of ERC claims for taxpayers who are experiencing financial hardships. Valid ERC claims are processed expeditiously. In addition, the IRS deployed the ERC Voluntary Disclosure Program and claim withdrawal process initiatives to counter questionable claims, further protecting taxpayers with valid claims and ensuring that their claims are prioritized.

TAS RESPONSE: While the IRS has stated it is “processing” claims expeditiously, taxpayers and TAS are frustrated with the long delays in processing (allowance of the claim, denial of the claim, or the initiation of an audit) for ERC claims. Over 634,000 of ERC claims filed prior to the September 14, 2024, moratorium are still waiting for processing. Most have waited nine to 12 months to receive any information as to the status of their claims. Claims filed after the moratorium are still in suspense, and the IRS has not begun processing any of the over 698,000 claims pending review. Prioritizing the processing of ERC claims for taxpayers experiencing financial hardships is critical to providing the relief Congress intended. The timely processing of all claims will help to foster taxpayer trust and confidence in tax administration.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 12/31/2024

IRS RESPONSE TO RECOMMENDATION: ​​The IRS reviewed its longstanding decision to have remote call site Customer Service Representatives (CSR) assigned only to phone work. We are redirecting our efforts and expanding the CSRs’ work to include paper case processing. This affords us additional resources and flexibility to effectively manage our inventories and support our paper reduction efforts. In October 2023, Accounts Management (AM) began the planning process to provide training on paper case processing. This included identifying needs, developing the curricula, and working with IT to ensure the required software was up to date. Training is scheduled to begin April 22, 2024, with June 14, 2024, as the projected date for completion and CSR certification.

CORRECTIVE ACTION: CSR training and certification to be completed by June 14, 2024.

TAS RESPONSE: We support the IRS’s plan to train CSRs in paper case processing. We are optimistic that ensuring CSRs can work on paper case processing will reduce paper backlogs and improve the taxpayer experience. We recommend that the IRS balance the CSR workload during the 2025 filing season to prevent another year of unprocessed paper.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 12/31/2024

IRS RESPONSE TO RECOMMENDATION: ​​​​Automating First Time Abate (FTA) has been a priority within the IRS, and IRA funding allowed this project to continue. We are actively working to program our information technology systems to systematically apply FTA to all eligible taxpayers by January 1, 2026, in time for filing season 2026. Automating FTA involves complex programming that must be completed in phases. The first phase incorporates account analysis and codes indicating compliance. The second phase establishes indicators for the three prior years based on the compliance codes from phase one. The final phase will use the indicators established during phase two to determine whether a taxpayer is eligible for the FTA waiver and grant penalty relief when eligible. The final phase will also contain programming that will prevent additional accruals of the penalty even if the tax is paid. Each phase of programming must be developed, tested, and then implemented before the next phase can begin. The IRS is also developing the process by which taxpayers will be able to change FTA to reasonable cause when reasonable cause criteria are met.

The IRS agrees with providing taxpayers the ability to change FTA to a reasonable cause defense when reasonable cause criteria are met, and we are developing the process and related instructions to effect this change

CORRECTIVE ACTION: IRS will systemically apply FTA to all eligible taxpayers by January 1, 2026.

TAS RESPONSE: Automation of the application of FTA will reduce taxpayer cost, provide fairness of relief for low-income taxpayers and small businesses unaware of the benefit, and improve efficiencies for the IRS. Although the IRS may not be able to complete this project in FS 2024, the IRS is making progress toward automating FTA by FS 2026. Providing the ability to substitute reasonable cause for FTA at the same time as automating FTA will ensure taxpayer fairness by not forcing taxpayers to use their once-in-three-years FTA waiver when reasonable cause applies.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 1/1/2026

IRS RESPONSE TO RECOMMENDATION: The IRS plans to implement the recommendation to prioritize the electronic processing of e-filed Forms 1040X. Automated processing of Form 1040X is currently in the design stage of development. Incremental testing will begin during calendar year 2026. The IRS plans to implement the recommendation to include amended employment tax returns, as well as applications for tentative refunds, in the e-file program. Starting June 2024, taxpayers will be able to electronically file the following amended employment tax returns.

• Amended Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
• Form 941-X, Adjusted QUARTERLY Federal Tax Return or Claim for Refund
• Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund
• Form 945-X, Adjusted ANNUAL Return of Withheld Federal Income

The above returns will be processed manually at this time. Additional amended business returns and the application for tentative refund requests are part of future development discussions.

CORRECTIVE ACTION: The IRS plans to implement the recommendation to include amended employment tax returns, as well as applications for tentative refunds, in the e-file program. Starting June 2024, taxpayers will be able to electronically file amended employment tax returns.

Incremental testing of the electronic processing of Form 1040X will begin during calendar year 2026 (note: implementation is contingent on the prioritization of funding and other work initiatives).

TAS RESPONSE: We support the IRS’s plan to allow electronic filing of amended business and employment tax returns and applications for tentative refund requests. However, without expediting the use of electronic processing, the backlogs related to the manual processing of these returns will continue.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 6/30/2024

IRS RESPONSE TO RECOMMENDATION: We continuously review and evaluate solutions to assist taxpayers in filing complete electronic returns and alleviate processing delays or issuance of correspondence. The e-file system rejects fraudulent or duplicate returns as agreed upon with the Security Summit partners. This is a collaboration between the IRS and members of private industries, the states, and financial institutions, to alleviate fraud from occurring and to protect taxpayers. Additionally, the IRS works with external partners to educate them on the top error rejection codes during various industry calls. We will continue to assess specific scenarios that force taxpayers to file by paper and analyze whether we can allow taxpayers electronic access while mitigating the risk of fraudulent activity.

The IRS is planning to allow returns claiming an Earned Income Tax Credit that also had an Identity Protection Personal Identification Number to be received electronically in filing season 2025.

CORRECTIVE ACTION: N/A

TAS RESPONSE: We support the IRS’s rejection of fraudulent and duplicate returns. However, the IRS should continue to review the most common rejection reasons and determine ways to minimize those rejections without increasing the risk of identity theft and the filing of potentially fraudulent returns. Electronic returns that meet the Beard standard need to be accepted electronically. The IRS does not have a legal basis for rejecting valid tax returns. The IRS should also continue to evaluate whether it is feasible to accept an imperfect tax return electronically or allow correction rather than forcing the taxpayer to paper file the return with the error uncorrected.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A