By Laura Saunders 

It's May. Do you know where your tax refund is?

Dan Schoenherr doesn't. In February, Mr. Schoenherr, a 72-year old retired credit-union executive living in Westfield, Ind., prepared and filed his return online, claiming a refund of about $8,000. On Feb. 16, he got a notice saying the Internal Revenue Service had accepted his return.

Since then, nothing.

When he checks the IRS's Where's My Refund? tool, it says, "We cannot provide any information about your refund." His phone calls to the agency have been rejected due to high volume. In April, he spoke with his online preparer but it said he had to contact the IRS. Also in April, he sought aid from his Congress member and filled out a form allowing staff to ask the IRS about his return.

"It's crazy. I've been e-filing for more than 10 years and never had this trouble," says Mr. Schoenherr.

Mr. Schoenherr is far from alone. This year a host of problems rooted in the Covid-19 pandemic have led to unprecedented customer-service problems at the IRS. They include delayed processing -- and refunds -- for millions of 2019 and 2020 returns, a frustrating inability to reach the IRS by phone, and 260,000 notices saying taxpayers failed to file 2019 returns when they likely had, among other things.

Tax professionals, who have a dedicated phone line to the agency, are also frustrated. "Even with a special line, it's hard to get the IRS on the phone and it's taking months to resolve issues that should take weeks," says Jan Lewis, a CPA with Haddox Reid in Jackson, Miss. Her firm prepares some 2,500 returns a year, about two-thirds of them for individuals.

For its part, the IRS has had to do more with less, including 15% fewer employees in 2020 than in 2010. Since the beginning of the pandemic, the agency has had to delay two annual filing deadlines; coordinate a total of 470 million stimulus payments to individuals, many of whom weren't in its system; and apply tax-law changes for 2020 that Congress enacted in March, 2021, after millions of filers had already submitted returns. That's in addition to common staffing and logistical challenges faced by many large organizations since the start of last year.

In some cases, paper returns and envelopes containing checks piled up in trailers for want of people to process them, and the IRS has had to move them around to offices with available staffers.

"This has been a challenging year," IRS Commissioner Chuck Rettig said in testimony before Congress in April. "We greatly appreciate the patience and understanding of others." He noted that the IRS's call volume has more than doubled, to more than 1,500 calls per second at times.

Now the IRS is reviewing about 16 million 2020 returns, mostly because of tax changes last year and in March. It must also sort through returns to issue refunds on some 2020 unemployment payments. And it must gear up to send checks to millions of families as upfront payments of child tax credits for 2021 beginning this summer.

That's a lot -- but it does little to lessen the frustration of taxpayers like Mr. Schoenherr who can't communicate with the IRS.

What will resolve this mess?

This year, maybe only time and patience. For now, here's more information for frustrated taxpayers.

Don't call the IRS, in most cases

According to data from the National Taxpayer Advocate, only about two of every 100 phone calls to (800) 829-1040 are getting through. Even then, the staffer often won't be able to answer the question, especially if it's about a refund. So calling the IRS is likely to be a waste of effort.

There's a key exception to this advice for taxpayers who get a notice from the IRS asserting taxes due or requesting specific information. These letters usually give a number to call that's different from the main 800 number, and the chances of getting through are far higher -- especially for calls made early or late in the day and not on Monday, according to an IRS spokesman.

Don't ignore these letters (see below), and a good place to start is on the phone.

Understand tax-refund delays

Recently the IRS was still processing about 1.3 million individual returns filed last year, many of them on paper. (Not all of these filers were Luddites; the IRS e-file system can't handle certain forms or documents.) These have to be keyed in by individuals, and the IRS is moving returns to different offices to get through the backlog.

The agency is also holding about 16 million individual returns filed in 2021 -- and refunds due on them. It must review each one to make sure filers correctly claimed recovery rebate credits if they got (or didn't get) stimulus payments. It must also double-check child tax credits and earned-income tax credits for 2020.

This month the IRS will also begin issuing refunds to filers eligible for an exemption of up to $10,200 per recipient of 2020 unemployment pay that Congress enacted in March after many people had already filed returns. According to a spokesman, the process will begin with simpler returns before proceeding to more complex ones, such as for married couples. It's expected to take several months to complete.

To find out about your refund, use the IRS's " Where's My Refund?" tool. If it has no information, check again in a week or so.

Handle IRS notice letters with care

These typically say the filer owes more money to the IRS or request more information. In early February, the agency sent 260,000 such notices erroneously saying the taxpayers hadn't filed 2019 returns when they had. On Feb. 18, it issued a statement that recipients should disregard these letters.

Except in this case, do not ignore these notices even if they seem incorrect. Instead, practice the tax equivalent of "defensive driving." Call to discuss the issue if a special phone number is given, and make notes of the date and content of the conversation, including the IRS staffer's name. Write the agency if requested, and respond to future letters even if that means sending a copy of a letter you have already sent.

Always send correspondence to the IRS via certified mail, and don't lose the receipts.

But don't feel you must pay an erroneous notice. Ms. Lewis says some of her clients have been so fearful they've paid the IRS without telling her in order to stop threatening letters. That has complicated her efforts to fix their problems.

Know that advocates are trying to help

National Taxpayer Advocate Erin Collins has called for the IRS to communicate better with taxpayers so they aren't in the dark. For example, she says the agency should release more timely information about the reasons for refund delays.

Ms. Collins heads the Taxpayer Advocate Service, an independent, effective unit within the IRS that aids taxpayers, often when they are facing dire economic circumstances (such as eviction) or are tangled up in red tape over a long period. This year TAS is hampered in its ability to help because many filed returns haven't yet been entered in the IRS's system.

The American Institute of CPAs also has a list of recommendations for the IRS, such as pausing the agency's collections process for 90 days after May 17 to let the system reset. So far the agency hasn't responded to the proposals.

At least there will be interest on late refunds

For most tax refunds issued after April 15, the IRS will pay interest as long as the return was filed by May 17. How this works is complex, but interest will apply starting a few days after April 15. The current interest rate comes to about 3% annually, and the IRS plans to include interest payments with refunds.

The interest payments are taxable income on your 2021 return.

Write to Laura Saunders at laura.saunders@wsj.com

(END) Dow Jones Newswires

May 07, 2021 05:45 ET (09:45 GMT)

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