Expert advice: Dealing with the IRS backlog & its impact on expats
COVID-19 shook the world – and many governmental processes, such as managing tax returns, were disrupted as a result. During last year’s US tax filing season, hundreds of thousands of taxpayers experienced delays in refunds, due to IRS staffing issues and pandemic-related slowdowns.
In January of this year, the IRS warned taxpayers to file early and to ensure returns were accurate in order to avoid delays. But for many US expats, filing early wasn’t an option – particularly if they were waiting on tax paperwork from other countries. In fact, many expats may have even filed for an extension, pushing their tax deadline to October 15th of this year.
Whether you filed your returns before the expat deadline of June 15, 2022 or if you still haven’t filed yet, here’s what you need to know about the IRS backlog, how it impacts you, and some tips for reaching out to the IRS for a faster response time.
The IRS Backlog is Worse than Last Year’s
If you thought last year’s backlog was bad, it may surprise you to hear that the IRS is even further behind this year. As of June 22, 2022, the IRS had 21,300,000 paper tax returns awaiting processing. Last year at this time, the number was 20,000,000.
Expanded tax credits, such as the Child Tax Credit, and new tax changes from 2021 are further complicating the tax-review process.
Prior to the pandemic, if taxpayers filed their tax returns by mail, it typically took the IRS four to six weeks to deliver refunds. US expats receiving paper checks may have waited even longer. However, now refunds for paper tax returns can take longer than six months to process – and in some cases may even exceed ten months.
US expats who filed by mail may face even longer delays since it will take longer for the IRS to mail a refund check or reach out to them with questions or official notices. So, if their 2021 tax return or any other required paperwork – like FBARs – aren’t correct, it may take a long time for the IRS to connect with them.
Four Things You Probably Didn’t Know About the IRS
Once you receive an IRS letter, figuring out your next steps can be confusing. You may want to reach out to the IRS directly, but due to their strained staffing resources and their having millions of returns to sift through, you might find it difficult.
Here’s what you need to know when contacting the IRS to set you up for success:
1. The IRS does not have a centralized computer system.
It may feel impossible to believe, but it’s true – the IRS does not operate on a centralized system. As a result, it’s important you reach out to the IRS by calling the phone number listed on your notice. If you reach a different IRS department, they may not be able to view your file or they may not have any record of the issue you’re trying to rectify.
2. If you reach an IRS agent, they may not be fully trained.
The unfortunate reality is not all IRS agents on the phone lines are fully trained. They may know the ins and outs of domestic tax law, but US expat tax regulations are much different and more complicated. Our team of experts has found that some agents aren’t up to speed on IRS processes like the Streamlined Procedure, for instance.
This can make trying to take care of an IRS letter even more frustrating, and sometimes it requires multiple phone calls to remedy.
3. IRS notices are not always correct. You may owe less money or nothing at all.
Just because you’ve received an official IRS letter with an amount due, does not mean the notice (or amount) is correct. These letters may claim that US citizens or expats have made one or more filing errors that lead them to owe more money than stated on their tax returns. But, in our experiences, this information isn’t always accurate.
This year, in particular, our Client Advocacy team has reached out to the IRS on behalf of our US expat clients, only to find that in several instances, there were no errors on their tax returns. In these cases, the amount due was removed immediately.
4. The IRS tax professional line is often more backed up than the individual client lines
A special IRS phone line is designed for tax professionals, but it’s not always the best option. Our Bright!Tax team has tried many times to use this professional line, but at times, it can be extremely hard to get through. In our experience, it’s most efficient to use the individual client lines instead.
Five Tips to Help When Dealing with the IRS
Connecting to the IRS right now can be challenging. The IRS recently noted that during the 2022 tax season alone, it received over 73 million phone calls. Of this number, only one out of ten calls actually reached an IRS employee. And, the fiscal year isn’t over yet.
Last year, for instance, the IRS received over 282 million phone calls, but only 32 million were actually answered. This may feel frustrating, but with its staffing shortages, it’s not possible right now for the IRS to answer every phone call.
Here are some tips to help boost your chances of reaching an IRS agent; therefore improving your odds of resolving an issue over the phone:
1. Time your call
The timing of when you reach out to the IRS plays a large role in whether you’ll get connected to an agent. While there’s always an element of chance, calling in the early morning or late evening Eastern Time (ET) is when you’re most likely to encounter the shortest wait times.
The IRS’s helpline is available from 7am until 11pm ET, so trying to call between 7am and 8am ET or after 9pm ET can boost your chances of reaching an IRS agent.
2. Consider using Skype
Calling over the phone may seem like the simplest way to reach out to the IRS, but using an app like Skype could save you money. Since you don’t know how long you’ll be waiting for the call to be answered or how long you’ll be on the line when you do get through, if you’re calling internationally, your phone bill could significantly increase while trying to remedy your tax issues.
A paid Skype account, however, can connect you to any of the IRS lines, and is a more cost-effective solution. So, if you have a major tax issue or worry you may be on the phone for hours, opting for Skype might make the most sense.
3. Prep before your call
This may seem obvious, but having all of your tax paperwork in front of you before calling is crucial. This means your tax returns and any other financial documents, such as your FBAR, business paperwork, pay stubs, documentation of taxes paid to other countries, IRS notices, and bank account information.
Even if you’re able to pull all of this information up online, we recommend either printing it out or having it open in a format (like a PDF) that is unlikely to crash or disconnect while you’re on the phone. Otherwise, you risk having to end your call and reach out again when you have all the proper paperwork ready.
4. Mention your expat status right away
You may think the IRS agent you’re speaking to knows you’re a US expat by the information in your tax report. While they may pick up on this right away, it’s best not to make any assumptions. Instead, immediately let them know that you’re a US expat. This way, right at the beginning of the call, they are informed that you have different filing requirements, including an extended deadline.
This could also save you from being given advice that does not apply to your financial situation as a US citizen living abroad.
5. Open a US bank account
You may already have a US bank account, but if you don’t, it’s smart to open one – even if it only serves as an account for paying or receiving tax money. If you owe taxes to the IRS, it’s often faster to pay with a linked US bank account. Likewise, you may receive your tax refund faster if you have a US bank account where the IRS can direct your return.
Reach Out to Bright!Tax if You Need Support
Even in a normal tax situation, receiving an IRS letter can be frightening. And tracking down the IRS when you’re thousands of miles away, in another time zone, presents its own challenges. If you’re not sure what you need to do next, or you think the tax liability claims in an IRS letter may be wrong, we have a team of experts, ready to advocate for you.
Our CPAs work with US expats every day to help facilitate the tax filing process. We know the US expat tax laws and can help you figure out the best path forward. We’ll even reach out to the IRS on your behalf. Don’t get discouraged – we’ll help you reach the IRS and make sure you feel better about your tax situation. Simply reach out to our Client Advocacy team, and we’ll connect you to support in one business day (or less!).