When two clients received an ominous letter from the IRS last July, Gerry Barrasso, their financial advisor, urged the married couple to calm down. The missive said that the New York City pair owed an additional $271,346 in tax, including a $54,269 penalty and $11,423 in interest, on their sale of nearly a dozen Vanguard mutual funds in 2019. There was one problem: Barrasso’s clients in fact owed maybe 4% of that amount, or around $12,000. Their brokerage statement from Vanguard, a copy of which the tax agency had, proved it.
Barrasso, the founder and president of United Financial Planning Group, an independent advisory firm in Hauppauge, New York, fired off a letter to the IRS explaining the discrepancy. He never got an answer. He also called its hotline for tax practitioners multiple times, to no avail.
“There are days where you call, and the message is to simply call back on another day,” said Barrasso, who is a CFP as well as a CPA. “When you do get through, it could take up to two hours to get someone on the phone.” He added that on the several occasions when he managed to connect with an agent, the line always disconnected after 15 or 20 minutes. So, he rued, you “have to start all over again.”
Few people, except perhaps the
“The amount of time wasted, not to mention the stress to the client, is ridiculous,” Barrasso said.
At stake for some investors and their advisors is not just anxiety through the roof and frustration. There’s also the looming issue of whether taxpayers in limbo will have things sorted out in time for their next filing season, which opens in January with an
Before then, “if your return is not yet processed, you’re going to have a hard time when you file next year,” said Richard Austin, the executive director of Integrated Partners, an advisory firm with broker services in Waltham, Massachusetts, that’s part of San Diego-based LPL Financial. The IRS compares a current return to that of the prior year, so if the most recently filed return is a mess or unprocessed, that can mess up the next return as well. As of mid-morning Nov. 16, the IRS has around
In a clog that mirrors that of cargo ships waiting to unload their goods in Los Angeles, the IRS
As of Sept. 11, none of the 5.5 million paper returns filed by individuals or 3.8 million paper returns filed by businesses this year had opened,
The logjam is down from a whopping
The pandemic and its related tax law changes regarding stimulus checks, the Recovery Rebate Credit (if a taxpayer didn’t receive all three “stimmie” payments), unemployment compensation and expanded child tax credits, to name a few — all these issues wreaked havoc on the IRS in early 2020. This year through mid-August, the IRS sent out more than
IRS Commissioner Charles Rettig sent out a desperate SOS for more funding for the perennially cash-strapped agency on Nov. 11,
Will Holt, a partner with Financial Symmetry, a fee-only advisory firm in Raleigh, North Carolina, has a client who filed a trust return in August but got an IRS letter on Nov. 8 saying that the taxpayer hadn’t filed a return. “It’s the disconnect — their systems aren’t speaking to each other,” Holt, a CPA and CFP, said of the agency’s different departments. He has 30 days to respond to the notice, after which “you just wait for the IRS to respond. Six months, nine months, 12 months…”
In October, the IRS sent Barrasso’s clients a second, scarier notice that said that it was moving toward placing a levy on their home if they didn’t pay up. The agency, he said, could easily have seen that the letters it sent his married clients were in error. That’s because when an investor sells stocks, commodities or other securities, their brokerage or wealth management firm automatically sends the agency a form known as 1099-B, detailing how much money they made or lost on a trade.
“The only thing you can do is wait for the IRS to respond with a letter,” Barrasso said. “It can take 12 months sometimes.”
