Is the IRS going to get all tax returns and refunds processed by the end of the year? Will they finally be given the chance to go after those who use payment platforms like CashApp or Venmo? Last month Democrats proposed that the IRS be able to scrutinize all bank transactions of $600 or more. According to the Biden administration, the goal was simple: Get the wealthy to pay their fair share.
However, critics of the original proposal, which was pared back to transactions of $10,000 or more this week, said it would hurt poor people and small businesses. History indicates that poor people are targeted by the IRS at a greater rate than the wealthy.
But that hasn’t been the only issue facing the IRS in recent months. A staffing crisis at the IRS, math error letters, audit notices, and millions still waiting for 2020 tax returns have all complicated operation for the agency.
Will the IRS get tax refunds distributed before December 31?
The IRS says it will get 2020 tax returns processed and refunds issued by the end of the year. On October 15 the final deadline for those who requested an extension on tax filing passed. With its passage, another estimated 5 million tax returns for the IRS to process. The agency still had millions of tax returns to process – and in August was dealing with a historic backlog.
Why does the IRS want stimulus payments back?
Thousands have reported receiving math error notices from the IRS. These letters were sent out during the summer months, indicating the IRS failed to calculate income and tax breaks associated with the American Rescue Plan properly.
This is different than those who were notified they’d be receiving a refund from the IRS due to overpayment when filing taxes last spring. These notices indicated that taxpayers had 60 days to repay, or face fines and fees.
In many cases, taxpayers were told they had little recourse. “We were told we could appeal it, but that we’d need to pay what the IRS demanded first,” Allison Reyes told FingerLakes1.com. “It felt like we were being held hostage or being demanded ransom.”
A representative for the IRS told Reyes to pay the amount they indicated she owed- then file a claim. “They told us, ‘Worst case scenario is that we’d get our money back next year when we filed taxes again’,” she recalled. “That wasn’t what we wanted to hear, but at least we have the means to do it. I feel bad for the families who received these letters and don’t have the money to pay the IRS for their error.”
Reyes says her family consulted a tax professional, who said they would easily regain the funds when they file taxes in 2022.
Why do Democrats want the IRS to target individual bank transactions?
The issue of IRS enforcement dates back to President Joe Biden’s campaign promise of unlocking hundreds of millions of dollars through better IRS enforcement. He argued that thousands of wealthy individuals used small bank transactions to hide income and shield themselves from paying taxes.
The original proposal brought forward by Democrats last month would have required all transactions over $600 to be scrutinized by the IRS. In theory, the proposal would’ve given audit authority to the IRS on all bank accounts.
Opponents of the legislation say it went too far, and would’ve largely impacted low income earners. “There’s a reason the IRS has historically audited poorer people at a higher rate over the years,” explained Micheal Powers, a tax preparer working in New York and Pennsylvania. “They don’t have access to lawyers, and generally speaking – don’t put up a fight. Mainly because they cannot. Especially if they didn’t utilize a tax professional who knows how to navigate the really complicated process.”
Powers works with poor people in several underserved communities helping residents file taxes safely and accurately to avoid IRS scrutiny.
What types of transactions will the IRS be taking a closer look at next year?
The IRS will target payment platforms. For example, the IRS will be watching payments made over services like Venmo, PayPal, CashApp, and others more closely.
Powers says to be careful using those platforms. Also, be ready to submit documents to the IRS if you’re a frequent user.