The IRS is woefully understaffed: in IRS offices across the country staffing is down 7 to 41% and not one office has seen an increase.

Complicated correspondence is not answered timely, or sometimes at all. I have a large collection of letters from the IRS saying that it received my inquiry some time ago, that it strives to answer inquiries within 45 days, but that it needs another 45 days to respond. But the understaffing and the resultant delays often work to my clients’ advantage. Here’s two examples.

Audit Reconsideration Example. A client’s CPA said she’d handle the client’s audit, but the CPA went out of business mid-audit and didn’t tell my client or the IRS.  The IRS continued with the audit and presented my client with a $50,000 tax bill. My client owes nothing if her expenses are presented correctly, which they weren’t. There’s a process to address this problem: the audit reconsideration which I promptly applied for once my client came to me. It’s now fifteen months later, and we still have not heard back from the IRS. However, collection notices for the $50,000 the IRS thinks it’s due have stop being sent to my client. Indeed, when looking at her account, I see that the IRS has flagged it as “claim pending,” an internal IRS code that prevents its personnel from issuing further collection notices. I have no idea when IRS will finally pick up my client’s file and grant the audit reconsideration. Frustrating but my client isn’t hurt.

Collection Due Process Example. Another client didn’t file tax returns and eventually an IRS collection agent called and said he was preparing and filing returns on her behalf (yes, the IRS can do this). This is always a bad thing because the IRS will make the most conservative guesses on filing status and deductions, so the total tax owed is always higher when the IRS prepares a taxpayer’s return, than when the taxpayer does. At this point my client hired an accountant, who worked up actual tax returns and sent them to the collection agent.

Six months later my client still hadn’t heard about her filed returns, but did start receiving collection notices on IRS-prepared tax returns. My client hired me at this point in the story, and I filed a collection due process hearing since the IRS clearly had not processed the returns she’d send. Collection due process stops the IRS collection, but only when the IRS has sent the last collection notice. It hadn’t, so the collection due process hearing request was denied. Almost exactly a year ago, I sent a request for an audit reconsideration and attached copies of the previously-filed returns and asked that they be processed finally. We still haven’t heard from the IRS. However, after I filed for an audit reconsideration, the IRS added the “claim pending” notation to my client’s account, thus ending all collection processes. We don’t know when or if the IRS will grant an audit reconsideration but, again, my client is not harmed by the delay – only irritated by the IRS’ glacial pace.

In both cases, I could call the IRS to see what’s happening and if there’s any way to speed up the process. However, such a call likely won’t get my clients’ cases unstuck, and it will end up in another bill from me: I have sometimes been on hold with the
IRS for over 6 hours, and the average time I wait is approximately 90 minutes.

Even though interest accrues on my clients’ unpaid liabilities at 4 to 10 percent per year, delay works to their advantage. They are likely to owe a lot less tax in the end than the IRS assessments on the books, and the 10-year collection statute of limitations is running. If the IRS never gets around to opening their files, then the tax assessments will disappear without being collected. If the IRS finally does deal with these situations, the taxpayer will have been able to postpone paying the IRS for a long time.

That’s good for my clients. It’s bad for the country; the tax system is at the heart of how our government functions. Good administration of the tax laws breeds respect for the rule of law in this country.