Q4 2022 Tax Updates

As 2022 draws to a close, the biggest story for taxpayers is the continued delays and paper backlogs at the Internal Revenue Service. The IRS reduced its paper backlog this year but continues to struggle under mountains of paper returns and taxpayer correspondence.  Hold times for phone calls to the IRS still exceed an hour in most cases.  

Over 4,000 employees were hired in 2022 to help with the backlog, customer service, and other operations. These employees still need to be fully trained. Meanwhile, the IRS is expecting an exodus of retiring veteran employees.  

The National Taxpayer Advocate and industry groups continue to pressure Congress and the IRS to implement document scanning technology and expanded e-filing. Due to the pending shift in Congress and the early posturing for the 2024 election, there will be no appetite or compromise in Congress to provide additional funding or resources to the IRS.  

Even under ideal circumstances, it will take several years for the IRS to fully implement major reforms. It appears that the IRS’ challenges will continue to affect taxpayers for the foreseeable future. 

As we begin the 2023 filing season, please keep the following advice in mind: 

  • Send any paper tax return or correspondence to the IRS through certified mail or other method that provides tracking information. This will help prove timely filing of returns and responses to tax letters and notices. This is the most important action taxpayers can do to avoid major headaches in the future. 
  • E-file returns when available. As of this posting, there is no indication from the IRS or our tax software vendor that e-filing will be made available for Form 5227, which is the required form for charitable lead trusts and charitable remainder trusts. Expect the need to paper file Form 5227 in 2023 and make arrangements to mail the return using certified mail or other delivery methods where the package can be traced. 
  • Retain original tax documents indefinitely, but at least three years after filing a return. Retain all proof of mailing returns indefinitely. 
  • Retain investment statements, 1099s, copies of tax returns, and any documents that support cost basis or a charitable deduction. 
  • Expect any correspondence sent to the IRS to go unaddressed for up to a year. Avoid sending duplicate correspondence if you never hear back from the IRS. Send correspondence via certified mail to ensure its delivery and retain the proof of delivery indefinitely. 
  • Expect long hold times for IRS customer service. If engaging an agent to speak on your behalf with the IRS, like a CPA, attorney, or Ren, Form 2848 Power of Attorney must be on file with the IRS for the agent to speak with the IRS. 

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