Taxes

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, Enrolled Agent and owner of Tax Practice Pro, Inc. (which provides continuing education to tax practitioners), has recommended that the IRS stop issuing automatic notices and re-direct any available staff to the CAF units to assist with processing backlogged authorization requests (and then move those staff on to processing notice responses that have also been languishing, sometimes since mid-2020).

Additional improvements to the traditional CAF authorization process that have been recommended by many practitioners include notifying the practitioner via their e-Services account when an authorization form has been accepted for processing (similar to the acknowledgement received for electronically filed tax returns and that includes the date of acknowledgment and the taxpayer’s identification number) and again when the authorization has been processed. These two additional notifications would allow tax practitioners to quickly determine if their authorization request got to the CAF unit and if it was approved. Currently practitioners must log into their e-services accounts and manually check to see if an authorization form has been processed (again, with no way of knowing if it was even received).

Tax practitioners would also like notification if the authorization request form is rejected and why so that any errors can be corrected. Currently forms submitted by mail, fax, or upload go into a black hole that requires practitioners to continue to check to see if the form has been accepted. It is never clear whether a long delay is an actual delay in processing, if the form was lost, or if it was rejected. This is inefficient both for practitioners and the IRS. Practitioners who can’t wait for the authorizations to be accepted are often forced to call an already overburdened PPL only to be told the form was rejected and will have to be corrected and resubmitted.

On July 18, 2021 the IRS opened a practitioner portal that is supposed to make filing and obtaining authorizations easier. The new submission and approval system promises to greatly improve efficiency for practitioners whose clients have or can get an IRS online account. Tax practitioners can log into a special Tax Pro account to submit authorization requests for their clients who can then approve the request. In general, the requests record in real-time to the CAF database. The practitioner is alerted to many issues (e.g., a CAF number mismatch) before the authorization is submitted. Once the request has been approved by the client, authorization approval should be displayed in the practitioner’s Tax Pro account within two business days. Marc Dombrowski, Enrolled Agent Owner of Tax Help Associates, a Buffalo, New York, firm that specializes in resolving tax issues had his first two submissions record in real time and the third in approximately 30 hours. That’s a huge improvement over the several weeks which had become the norm since at least 2020.

Of course, there is some fine print. Authorizations requested using the new portal are limited in scope (most notably they can only be used for individual accounts, not businesses and they can only authorize access back to tax year 2000). Additionally, while the practitioner is notified that an online request has not been approved, the unapproved request is not identified in any way (for example using the taxpayer’s name or TIN). While this may be a necessary security precaution it does pose problems for tax resolution specialists who often submit multiple authorization requests each day.

Processing the older authorization backlog may be even more important with the new portal now online. The IRS has always stressed to practitioners not to submit multiple copies of the same authorizations as it will delay CAF processing. Tax practitioners 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 would help to avoid duplicate submissions) if the information provided to practitioners reflects up-to-date CAF information.

Dombrowski states that when it comes to the CAF process, “It’s simplicity is its perfection.” New submissions will reliably always overwrite older submissions. That means that the limited scope authorization requests submitted online using the new Tax Pro accounts will replace any full-scope authorizations (2848 or 8821) the IRS currently has on file, so practitioners should be mindful when using the portal for requests on existing clients. Of course new submissions overwriting older submissions also means that full-scope authorizations submitted by mail, fax, or upload will overwrite limited scope authorizations if the full-scope authorizations are processed after an authorization submitted using the portal. Morris Armstrong, an Enrolled Agent who owns an independent tax practice in Cheshire, Connecticut, says “it is likely safer to request the 8821 [which allows a practitioner to obtain information but not to negotiate] and preserve the 2848, barring urgency to negotiate.”

Finally, client approval of an online authorization request must also be provided the same day as the request is made by the practitioner and, depending on the client, that is not always possible. Truthfully, many practitioners can resolve their clients’ issues if the client has an IRS online account and is willing to request the necessary transcripts and provide them to their practitioner. Nevertheless, while a transcript review may resolve some problems, often further intervention by the tax practitioner is required. Still, anything that speeds up 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 welcomed by taxpayers, tax practitioners, and the IRS.

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