Thursday March 4, 2021
30% Fewer Tax Returns By February 19
The IRS reported that delaying the opening of the 2021 tax return filing season has reduced the number of filed and processed tax returns. For the first week of the filing season, the IRS received 30% fewer returns compared to the same date for the 2020 season. However, the prior season had 26 filing days by February 19, 2020.
As of February 19, 2021, the IRS had received 34.7 million returns and had processed 29.8 million returns. This was well behind the previous year total, due to the shorter filing period. On February 19 of last year, the IRS had processed 48 million returns.
This delay in receiving and processing returns prompted a letter from the House Ways and Means Committee Chair Richard Neal (D-MA) and Rep. Bill Pascrell, Jr. (D-NJ). The letter to IRS Commissioner Charles Rettig noted that only 25% of taxpayer phone calls were being answered. Neal and Pascrell encouraged Rettig to add phone support staff to help increase the number of returns.
Both the number and value of refunds are also down. The dollar value of issued refunds is $48 billion this year, compared with $117 billion on the same date last year.
To encourage prompt filing, the IRS published IR-2021-44 to remind taxpayers there is help through IRS.gov and free tax assistance services.
The IRS Free File program is available to taxpayers with incomes of $72,000 or less. Taxpayers with higher incomes have access to the Free File Fillable Forms. These are electronic versions of the IRS paper forms.
The Free File program is easy to use and enables taxpayers to receive a prompt refund. The IRS issues 9 of 10 refunds in 21 days if the return is filed electronically.
Free File and e-filing also enable taxpayers to make convenient payments. They can pay without fee through an electronic fund withdrawal from their bank account or use Direct Pay.
Members of the armed services can use MilTax to electronically file a federal return. The Department of Defense also provides Military OneSource to assist members of the armed forces. Information on One Source is available at MilitaryOneSource.mil.
The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs provide free help for taxpayers. VITA is available to individuals with incomes of $57,000 or less, persons with disabilities, the elderly and those with limited English proficiency. TCE is available for seniors who are age 60 and older. Last year, over 2.5 million federal tax returns were completed through these programs.
With the COVID-19 pandemic, many volunteers also offer virtual help to taxpayers. The IRS-certified VITA and TCE volunteers can use phone and virtual calls to help taxpayers claim credits such as the Earned Income Tax Credit and the Child Tax Credit.
Taxpayers are reminded that their Economic Impact Payments (EIPs) are not taxable. If you are eligible for an EIP and did not receive the appropriate amount, you may claim the Recovery Rebate Credit on your 2020 tax return.
To find a VITA or TCE site, log on to IRS.gov and use the VITA or TCE Locator Tool.
Choosing a Qualified Tax Professional
The IRS released a Tax Time Guide and urged taxpayers to be careful in choosing a professional tax preparer. The IRS notes, "Even though the vast majority of tax return preparers provide honest, quality service, some cause great harm through fraud, identity theft and other scams every year."
In tax-year 2018, paid tax return preparers submitted approximately one half of income tax returns. Because individuals trust their tax preparer with sensitive personal and financial information, it is important to select a qualified person. The IRS reminds taxpayers, "No matter who prepares it, the accuracy of a tax return is ultimately the responsibility of the taxpayer."
The IRS notes that all paid tax preparers must have a valid Preparer Tax Identification Number (PTIN). There are also multiple characteristics of qualified and capable tax preparers.
AICPA Requests March 1 IRS Decision
In a February 23, 2021 letter to the IRS, the American Institute of CPAs (AICPA) requested a filing season decision from the IRS no later than March 1, 2021.
AICPA stated, "The rapid emergence of the Coronavirus pandemic generated never-before uncertainty. With approximately 28.1 million people infected and about 500,000 deaths due to the Coronavirus, there is an ever-growing uneasiness with the uncertainty surrounding the April 15 tax filing deadline.”
On February 18, 2021, eight House Ways and Means Committee Democrats asked IRS Commissioner Charles Rettig to extend the filing season. There is a precedent the IRS has extended the filing season for the State of Texas. Because of the winter storm and a federal disaster declaration by the Federal Emergency Management Agency (FEMA), in IR-2021-43, the IRS granted Texas residents and businesses until June 15, 2021 to file and pay taxes.
AICPA points out that a June 15 deadline would allow many taxpayers to be vaccinated against COVID-19. This would enable them to meet in-person with their tax preparer and facilitate the preparation of returns.
Applicable Federal Rate of 0.8% for March Rev. Rul. 2021-5; 2021-10 IRB 1 (16 February 2021)
The IRS has announced the Applicable Federal Rate (AFR) for March of 2021. The AFR under Section 7520 for the month of March is 0.8%. The rates for February of 0.6% or January of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.
Published February 26, 2021