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The IRS Bottleneck Most Taxpayers Have Never Heard Of

Bottlenecks are nothing new to the Internal Revenue Service. IRS issues with mail processing, return processing, and issuing refunds have been well publicized. Nevertheless, one of the most common IRS bottlenecks is one that many taxpayers, including many members of Congress, are unaware of. IRS notices about return adjustments, balances due, delays in refund processing, and a host of other issues continued to be sent automatically during the Covid-19 pandemic and continue to be issued after what most tax practitioners agree was the worst income tax filing season ever (even worse than filing season 2020). Taxpayers who choose to pay a professional to assist with an IRS notice must provide proper authorization, typically using either Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization. The representative then files the signed 2848 or 8821 with the Centralized Authorization File (CAF) unit either by mailing it, faxing it, or (more recently) via online submission. Once CAF approval has been granted, the tax practitioner can then represent the taxpayer, but getting CAF approval has become an increasingly fraught process.

The Internal Revenue Manual (or IRM) specifies that “receipts” [of authorization requests] are processed within five business days. Nevertheless, over the last few years processing times of three to six weeks or even longer have become increasingly common. This January tax practitioners were given the ability to submit authorizations online. Online submission was greeted with enthusiasm because it also allowed for the use of electronic (as opposed to “wet”) signatures. Online submission definitely made the process of getting a client’s signature and submitting the authorization form to the CAF unit much simpler, but because online submissions are processed in order along with mailed or faxed in submissions, uploading authorization forms has not been an expedient option for taxpayers needing immediate assistance. Typically practitioners representing taxpayers with short deadlines call the Practitioner Priority Line (PPL) and fax the form to the answering representative. Because all faxed forms require a “wet” signature the electronic signature and online submission process has proved less than helpful except for non-urgent matters.

The IRS CAF units in Memphis and Ogden were completely shut down in March 2020 in response to the pandemic (as was a third unit that serves taxpayers located outside of the U.S.). Consequently, authorization processing (which was already slow) was brought to a standstill—and then it went into reverse. Although all three CAF units re-opened in July 2020, and although the IRS has added additional staff to help clear the backlog, the CAF units are still taking several weeks to process mailed or faxed submissions. While there have been anecdotal reports of uploaded forms being processed in two weeks (as opposed to the six or more it sometimes takes for a mailed or faxed-in authorization), the IRS continues to state that the CAF units process all mailed, faxed, and uploaded forms on a first-in, first out basis. John Sheeley,

Additional enhancements to the traditional CAF authorization process that have been recommended by many professionals include notifying the professional through their e-Services account when an authorization form has been accepted for processing (similar to the acknowledgment received for tax returns submitted electronically and that includes the date of acknowledgment of receipt and taxpayer identification number) and again when the authorization has been processed. These two additional notifications would allow tax professionals to quickly determine if their request for authorization reached the CAF unit and if it was approved. Professionals are currently required to log into their e-services accounts and manually check if an authorization form has been processed (again, no way of knowing if it is received).

Tax professionals would also like to be notified if and why the authorization request form is rejected so that errors can be corrected. Currently, forms sent by mail, fax or upload go into a black hole that requires professionals to continue to check if the form has been accepted. It is never clear if a long delay is an actual delay in processing, if the form was lost, or if it was rejected. This is ineffective for both doctors and the IRS. Professionals who cannot wait for authorizations to be accepted are often forced to call an already overloaded PPL only to be told that the form was rejected and will have to be corrected and resubmitted.

On July 18, 2021, the IRS opened a portal for professionals that is supposed to facilitate filing and obtaining authorizations. The new filing and approval system promises to greatly improve efficiency for professionals whose clients have or can obtain an IRS account online. Tax professionals can log into a special Tax Pro account to submit authorization requests for their clients, who can then approve the request.

In general, requests are registered in real time in the CAF database. The physician is alerted to many issues (eg, a CAF number discrepancy) before authorization is sent. Once the request has been approved by the client, the authorization approval must be shown in the doctor's Tax Pro account within two business days. Marc Dombrowski, Owner Registered Agent for Tax Help Associates, a Buffalo, New York firm that specializes in solving tax problems, recorded his first two filings in real time and his third in approximately 30 hours. That's a huge improvement over the several weeks that had become the norm since at least 2020.

Of course, there is some fine print. The authorizations requested through the new portal are limited in scope (in particular, they can only be used for individual accounts, not for companies, and can only authorize access up to fiscal year 2000). Also, while the physician is notified that an online application has not been approved, the unapproved application is not identified in any way (for example, using the taxpayer's name or TIN). While this may be a necessary safety precaution, it poses problems for tax resolution specialists who often submit multiple authorization requests each day.

The processing of the previous authorization backlog can be even more important with the new portal now online. The IRS has always insisted that professionals not submit multiple copies of the same authorizations, as it would delay the processing of the CAF. Tax professionals tend to be a methodical bunch, and most will typically check to determine if a client authorization has been granted before attempting to upload an authorization using the new portal. It would be extremely helpful (and help avoid duplicate submissions) if the information provided to professionals reflects up-to-date CAF information.

Dombrowski states that when it comes to the CAF process, "its simplicity is its perfection." New submissions will always reliably overwrite previous submissions. That means limited scope authorization requests submitted online using the new Tax Pro accounts will replace any full scope authorizations (2848 or 8821) that the IRS currently has on file, so professionals should keep in mind when using the portal for existing customer requests. Of course, new shipments that overwrite previous shipments also means that full-scope authorizations sent by mail, fax, or upload will overwrite limited-scope authorizations if full-scope authorizations are processed after an authorization sent through the portal. Morris Armstrong, a registered agent with an independent tax practice in Cheshire, Connecticut,

Finally, client approval of an online authorization request must also be provided on the same day the request is made by the physician, and depending on the client, that is not always possible. Truth be told, many professionals can solve their clients' problems if the client has an IRS online account and is willing to request the necessary transcripts and provide them to their doctor. However, while a transcript review can solve some problems, it often requires more intervention by the tax professional. Still, anything that speeds CAF approval and provides simpler options for obtaining taxpayer transcripts has the potential to greatly reduce IRS phone traffic. And anything that reduces IRS phone traffic will be enthusiastically received by taxpayers, tax professionals, and the IRS.

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