The IRS Can Do Better For Small Firms

As if firms aren’t already struggling with high inflation, labor shortages, and jammed supply chains, the IRS’s troubles make it more difficult to obtain tax refunds. 

Unprocessed, Unresolved Returns

Refunds that are delayed impact cash flow and make it more difficult for businesses to stay open, pay workers and suppliers, and make investments.

Democrats and Republicans in Washington must work together to strengthen the IRS’s efficiency and fulfill the requirements of all taxpayers, especially America’s small businesses. 

It’s no news that the IRS has difficulty processing tax returns on schedule.

According to the IRS’s figures, the IRS will still have more than six million unresolved 2020 tax returns in 2022. Those are now two years late.

Per the Government Accountability Office, the IRS finished last year with around 10.5 million unprocessed returns and approximately 16 million total unresolved returns. 

Business returns account for a sizable portion of the backlog.

The Taxpayer Advocate Service said more than two million businesses’ quarterly tax returns (Forms 941 and 941-X) were unprocessed.

Numerous small businesses are eligible for refunds on these returns, due to initiatives established by Congress in the Trump presidency to assist small businesses in weathering the COVID pandemic. 

As the TAS made plain to Congress, “some taxpayers require refunds to meet wages or otherwise continue operating.”

Many of these are small businesses that require as much liquidity as possible to stay afloat at the moment. For some small firms, delayed help is effectively denied assistance. 

Falls on Congress

It is not only their money back.

Small company owners navigating the thousands of tax modifications implemented during the epidemic to assist them in surviving, while their firms were closed or severely restricted, require improved support.

Many of them are in limbo, awaiting responses from the IRS on how to resolve issues that developed, due to the flurry of tax law changes at the start of COVID. 

Stephanie Sims, an Arizona small business owner, is still awaiting her 2020 refund. Finance-Ability is one of 51.1 percent of America’s 32.5 million small firms in S-corporations, which file their business’s taxable income using IRS Form 1040.

Per the TAS, approximately 3% to 11% of the 85 million inquiries seeking assistance with Form 1040 were connected to a representative. That is unforgivable. 

The IRS is not entirely to blame here; it faces a difficult task in administering a byzantine and constantly changing tax system enacted by Congress.

Congress neglected the agency for several years. Simultaneously, with the resources available, tax enforcement has frequently been prioritized over resolving these customer service issues. 

Additionally, the IRS has failed to embrace the digital era.

It continues to manually process around 24 million printed tax returns and contacts, actually transporting paper on carts. Many of the IRS’s computer and data systems are incompatible.

Over the last couple of years, COVID and its consequences have wreaked havoc on businesses, particularly small ones.

At this critical juncture, the government should avoid piling on additional costs that impede the operation of these critical engines of growth and job creation.

The IRS needs to get its act together, process unprocessed returns, and refund money to people who are eligible for refunds. 

Congress should keep a close eye on the IRS’s progress because the public will also hold them to account if the agency doesn’t do its job well enough.

This will hurt the economy, job creation, and wage growth.