As April 15 approaches, the IRS is preparing for a surge of last-minute filers and taxpayers seeking an automatic extension of time to file their 2012 returns. The IRS received more than 148 million individual income tax returns in 2012, and that number is expected to rise in 2013. The increase in returns and the expectation from taxpayers that refunds will be paid within 21 days has put some pressures on the IRS. At the same time, the IRS is preparing for employee furloughs because of sequestration (across-the-board) spending cuts. However, high-ranking IRS officials have indicated that furloughs, if necessary, would not start until after the 2013 filing season.
Filing season delays
The 2013 filing season got off to a delayed start because of late tax legislation. President Obama signed the American Taxpayer Relief Act of 2012 into law on January 2, 2013. The IRS had originally planned to open the 2013 filing season on January 24, 2013. That date was moved to January 30, 2013 to give the agency more time to reprogram its processing systems for changes to the tax laws made by ATRA, and there were many. By January 30, the IRS had successfully updated many of its processing systems but needed more time for certain forms. Included in this group were widely-used forms such as Form 44562, Depreciation and Amortization and Form 5695, Residential Energy Credits.
On March 4, the IRS announced that it was accepting all 2012 returns after completing reprogramming of all of its processing systems. Since March 4, it appears that all ATRA-affected forms are being processed although some taxpayers have experienced delays. These include taxpayers claiming education credits on Form 8863. In some cases, the delay has been attributed to taxpayers failing to complete all of Form 8863 and leaving out certain information. Additionally, taxpayers claiming the adoption credit on Form 8839 must file their 2012 returns on paper. Paper returns are processed more slowly than electronically-filed returns.
Taxpayers can request an automatic six-month extension (through October 15, 2013) by filing Form 4868, Application For Automatic Extension of Time To File U.S. Individual Tax Return. Remember that filing an extension to file is not an extension of time to pay. An extension gives taxpayers extra time to file their return but does not extend the time to pay any tax due.
To help taxpayers, the IRS is providing late-payment penalty relief to individuals and businesses requesting a tax-filing extension because they are attaching to their returns any of the ATRA-affected forms that could not be filed until after January. The IRS will abate the penalty for failure to pay if the taxpayer requests a filing extension, pays the estimated tax liability by the due date, and pays any remaining tax by the extended due date of the return.
Without this abatement, taxpayers would be subject to a penalty of one percent of the unpaid taxes for each month or part of a month after the due date that the taxes are not paid. The failure to pay penalty can be as much as 25 percent of the unpaid taxes.
While the IRS can abate penalties, it has no authority under the tax laws to stop interest from running on taxes owed after April 15th.
The IRS paid out $110 billion in refunds in 2012, and is likely to match or exceed that number in 2013. Taxpayers have become accustomed to checking on the status of the refunds on the IRS website. Traffic on the IRS's popular "Where's My Refund?" online tool is so heavy that the agency is reminding taxpayers to limit their usage to once a day. Where's My Refund? is updated daily, usually at night. The IRS has requested that taxpayers use Where's My Refund? at off-peak times, such as evenings and weekends.
Those who are owed a refund should realize that the IRS does not pay interest on it. Although a taxpayer may file a return that claims a refund under the same circumstances that would deserve penalty abatement this year if taxes were owed, the IRS will not pay interest on that refund.
Sequestration, effective March 1, 2013, imposed $85 billion in spending reductions across the federal government. In response, many federal agencies, including the IRS, are expected to furlough employees.
The IRS is working to minimize employee furloughs, a senior agency official recently said. Potentially, IRS employees are looking at five to seven furlough days. Previously, Acting IRS Commissioner Steven Miller told agency employees that furloughs will not take place until after the filing season. If that is the case, IRS employees would likely experience furloughs between May and before the end of the of the government's fiscal year on September 30, 2013. It is unclear at this time what IRS operations, if any, could be spared from furloughs or if cuts in other areas, such as travel, could reduce the number of furlough days. The IRS is reportedly engaged in discussions with the union that represents its employees.
Sequestration has also caused the IRS to reduce the amount of awards paid to whistleblowers. Additionally, the IRS has announced that certain tax credits also have been affected by sequestration. These include the Code Sec. 45R small employer health insurance tax credit and the credits under Code Sec. 6431 for certain qualifying bonds.
If you have any questions about requesting an extension, penalty abatement, or any other questions about the 2013 filing season, please contact our office.