Some tax-exempt organizations are even losing their exemption or having it suspended over the IRS not opening mail or processing returns in a timely fashion, Karl said.
The loss of a tax-exemption can be crippling to an organization, the veteran tax lobbyist said. “They can’t take donations, donors can’t deduct the donations and it calls into question their actual legitimacy as a charity,” Karl added.
The AICPA is asking the IRS to suspend compliance actions and extend notice reply deadlines for taxpayers, since the agency is not currently opening paper taxpayer responses or inputting tax information into their database in a timely manner.
Currently, the IRS is still creating penalties letters based on the erroneous assumption that taxpayers have not responded or filed, Karl said.
“The impact of the pandemic on the IRS is dramatic. We believe that the response needs to be a little more dramatic. They suspended compliance actions in the spring of 2020 when the pandemic first hit, but once they felt they were back up and running they started bringing compliance activities back online without adequately processing their backlog. They still haven’t processed the backlog,” Karl said.
So far, the IRS “doesn’t seem to be receptive to making the changes, but we are continuing to have the discussion,” he said.