Important Estate Tax Portability Update Announced

Important Estate Tax Portability Update Announced

If the federal estate tax exemption is cut approximately in half in 2026, as is currently scheduled, it may create significant issues for Minnesota taxpayers. The matter becomes especially challenging when one considers what may happen if the portability election is not made. The portability election provides married couples a powerful planning tool, or if one spouse has already passed, a pathway to additional estate tax savings. In fact, recent changes have extended the deadline by which certain taxpayers can make the election. However, even as an extended late election, it is not automatic, and requires taxpayers to pay careful attention to filing details. To help clients, prospects, and others, Smith Schafer has provided a summary of the key information below.

Portability, Explained

Portability allows one spouse to transfer his or her unused exemption amount at death (also called the Deceased Spousal Unused Exclusion amount, DSUE) to the other. In so doing, both spouses can use up to their full federal exemption, currently $12.06 million per individual. This allows a married couple to exclude $24.12 million ($12.06 million each) from estate and gift tax in 2022. Individuals can give away during their lifetime and/or at death the federal exclusion amount and avoid federal estate tax on this same amount.

To elect portability, the estate of the first deceased spouse needs to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The estate tax return is due within nine months of death and can be extended for another six months if the estate timely files an extension. Because the federal estate tax exemption is set to revert to pre-2018 levels in 2026, high net worth married couples will need to closely evaluate their estate planning strategy with the new late portability election in mind. Especially for Minnesota residents, whose estates will be under different rules at the state level, portability is a way to maximize tax planning.

Late Election for Portability

Effective as of July 8, 2022 the late portability election has been extended to on or before the fifth anniversary of the first spouse death. Previously, estates generally had two years to make the election on Form 706. The IRS has considered and granted later portability elections, but estates had to go through a lengthier, costly process of obtaining a private letter ruling. Because portability can only be elected on Form 706, estates that fall under the federal filing threshold and therefore aren’t required to file Form 706, may have missed the election simply by not knowing about it or perhaps thinking they did not qualify.

Eligibility for late portability hinges on these requirements:

  • The deceased spouse must have a surviving spouse, have been a U.S. resident or citizen, and died after December 31st, 2010.
  • Form 706 wasn’t required to be filed based on the value of the gross estate.
  • An estate return was not filed within the time required

Consistent with previous IRS guidance, estates that should have filed but didn’t – or missed the deadline– are ineligible.

Updated guidance from the IRS allows for a simplified method of electing late portability. Though the IRS won’t contact eligible estates, the surviving spouse, executor, or other appointed representative may simply make the needed filing. A private letter ruling, and the process that goes with it, is unnecessary.

Proposed Minnesota Estate Tax Portability

Like 11 other states and Washington, D.C., Minnesota applies an estate tax, which can be a gap in tax planning that Minnesota married couples may be unprepared for. Up to $3 million is exempt from the state’s estate tax. From there, state estate taxes range from 13 percent (for estates starting at $3 million) and go up to 16 percent (for estates valued above $10 million). 

With a much lower exemption, many married couples have an estate subject to Minnesota estate tax. And in Minnesota, portability between spouses has not been allowed.

That could change

New in 2022, there’s a proposal to modify tax law to allow some level of spousal unused exclusion amounts. It would be effective as of June 1, 2022. The new law would allow any unused exclusion amount less than $3 million to be transferred to the surviving spouse.

Like the federal portability election, the surviving spouse or appointed estate representative would need to file an estate tax return and make the needed election. Once made, it is irrevocable.

Portability is one piece of a larger estate planning strategy. Married couples shouldn’t rely on it as the primary means to minimize or escape federal estate tax. Lifetime gifts, certain types of trusts, and the generation skipping transfer tax are other potential factors to consider. Finally, portability at the federal level might not be worth it for estates that are under the federal exemption, but if Minnesota’s proposed law passes, it’s still a valuable tool at the state level.

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The recently announced changes to the federal late portability election is good news for high-net-worth and other taxpayers. The benefit doubles if state tax laws are changed to permit a higher exclusion. If you have questions about the information outlined above, or need assistance with an estate tax matter, Smith Schaefer can help. For additional information, click here to contact us. We look forward to speaking with you soon.

ESOPs & Succession Planning for your Transportation company

ESOPs & Succession Planning for your Transportation company

Succession Planning – the process and strategy for identifying the critical positions within your transportation company and developing an action plan for potential leaders.

This article will provide insight on employee stock ownership plans (ESOP) and how they can be an option for succession planning for transportation companies. An ESOP can provide many benefits, such as tax savings for owners and the business and increasing the culture of ownership by involving employees who have shown service and loyalty. No matter what succession planning strategy is used, it is crucial to establish a plan early and set goals to achieve the objective.

Understanding ESOPs for Transportation Business

ESOP Basics

An Employee Stock Ownership Plan, or ESOP, is a qualified defined contribution employee benefit plan authorized under the Employee Retirement Income Security Act (ERISA). This type of plan is similar to the popular 401k profit-sharing plan that many businesses use. Here are a few basics of an ESOP:

  • It can provide employees with the opportunity to own shares of stock in the company.
  • It can be used in conjunction with other retirement plans, such as a 401k plan. However, often an ESOP is used as a replacement for other traditional retirement plans.
  • An ESOP is a tax-deferred investment of shares of company stock allocated to each eligible employee’s account. Ideally, the stock will appreciate over time as the business grows.
  • An ESOP is structured as a trust, with the employees as beneficiaries of that trust. An individual appointed as a trustee administers the plan and makes the majority of the decisions. After the ESOP is created, significant corporate actions usually are voted on by participants in the plan.
  • An ESOP can be funded by cash, stock, or debt. Regardless of how it is funded, cash must be available to pay out to exiting owners who retire or otherwise terminate employment.
  • An annual business valuation is required by an independent professional to determine the fair market value of the business for purposes of determining participant account balances for the plan.

ESOP Benefits for Employees

  • Ownership and retirement savings are directly affected by the success of the business. Employees can align their goals with the company in order to drive growth.
  • Any growth in the retirement plan is tax deferred until the employee retires.
  • There is a guaranteed market for sale of shares in the plan. When an employee retires, the ESOP agrees to repurchase those shares at the fair market value.

ESOP Benefits for Shareholder/Employer

  • If the ESOP purchases at least 30 percent of a C corporation’s outstanding stock, the previous owners can elect a Section 1042 Rollover to avoid paying capital gains tax on the sale of their stock. To do so, all sales proceeds must be placed in a qualified replacement property. The selling owners will pay capital gains tax only when they sell their replacement investments.
    • Qualified replacement property (QRP) – any security issued by a domestic “operating corporation.” An “operating corporation” is a business that, for the taxable year preceding the taxable year in which such security was purchased, had no passive investment income
    • An ESOP may own a portion or all of the stock in a company.
  • If the transportation business is structured as a C Corporation, dividends paid on ESOP-held stock are tax deductible.
  • If the business is structured as an S Corporation, the portion of earnings related to the ownership of the ESOP will pass through to the ESOP (rather than to individual shareholders) and avoid taxation by the individual shareholders.
  • Selling an ESOP will result in a stock sale versus an asset sale. Given the large amount of depreciation recapture built up from vehicles and other equipment, it may be more advantageous to sell stock than assets and receive favorable tax treatment.

ESOPs for Transportation Companies

Historically, many transportation companies have not utilized ESOPs. Setting up an ESOP requires available cash or the ability to take on more debt. Based on how transportation industry participants typically operate, these factors can make it difficult for companies that are heavily leveraged and require large annual capital expenditures. Even if cash restrictions and/or leverage limitations make it difficult to implement an ESOP, the benefits listed above still apply.

Does an ESOP Make Sense for your Business?

Historically, the ideal structure for implementing an ESOP consists of 20 employees or more and annual revenues of $10 million or more. The company must be large enough to spread out various plan costs and investment risks across the participating employees. Below are the general attributes of companies that may or may not want to consider implementing an ESOP:


  • The business has low debt levels and can finance all or a portion of an ESOP transaction.
  • The company is intended to be transferred to employees (no family in place to take over).
  • The current employee pool is expansive (50 or more) and has qualified management candidates.
  • The owner(s) is willing to receive a significant portion of the benefits of ownership change over a period of time.
  • The company has predictable cash flow and consistent historical earnings performance (no substantial, out-of-the-ordinary large capital expenditures expected for the future).


  • The business is already heavily leveraged with debt and would not be able to finance an ESOP.
  • The business is intended to stay in the family.
  • The current employee pool is not qualified to run the business without current ownership, or the existing employee group is small (20 or less).
  • The owner(s) is looking to receive a large part of the benefits of ownership change immediately or in a relatively short time period.
  • The company has unpredictable cash flow and historical earnings performance (this may include large unusual capital expenditures that may be needed in the future).

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Due to their significant tax benefits over other exit strategies, employee stock ownership plans have been a compelling succession planning option for transportation companies. If you answered “yes,” to the above and think an ESOP may make sense for your transportation business, let’s talk.

Smith Schafer experts can help determine why and when an ESOP makes sense, the fair market value for your transportation company, and assist in evaluating the exit strategy structure that meets your goals.

document Organization for Your 401k Plan Audit

document Organization for Your 401k Plan Audit

As discussed in part two of our 401k blog series, one of the purposes of a retirement plan audit is to ensure the plan operates in compliance with both plan documents and IRS and DOL regulations. To do this, your auditor will request access to several documents. Some will be plan-specific documents, while others will be HR and related documents.

Organizing Documents for a Smooth 401k Audit Process

Examples of plan-specific documents requested for a first-time 401k audit will include:

  • Plan document
  • Adoption agreement
  • IRS determination or opinion letter
  • Current summary plan description
  • Prior 5500s
  • Agreements with third-party administrators and other plan providers

Other 401k plan-related documents will be requested annually or as updated:

  • Any amendments to the plan document
  • Minutes for meetings related to the plan (trustees, investment committee, etc.)
  • Copy of fidelity bond insurance
  • Compliance testing results received from plan’s third-party administrator

In addition to these documents that the plan sponsor should maintain, your auditor will also need certain documents from your third-party administrator or plan custodian. Most providers will prepare an audit package that includes all necessary documents and can easily be shared with a plan auditor.

Once your auditor understands your plan, they will test a sample of transactions within the plan to determine if it is operating correctly. Examples of the areas tested include:

  • Participant eligibility – likely to include testing an employee’s age and length of service to determine if they are eligible to be in the plan
  • Participant contributions – includes both the participant’s deferral and any employer contributions. This could also include testing the employee’s wages for accuracy.
  • Investment earnings and other participant allocations
  • Plan distributions
  • Loans to participants (if allowed by the plan)

To test these areas, your auditor may ask for some of the following documents:

  • Form I-9 or other documentation showing the employee’s date of birth and date of hire
  • W-2s
  • Company payroll registers
  • Employees’ deferral election forms, including changes made during the year
  • Employee’s election to not participate
  • Support for pay rates
  • Support for hours worked (timecards, work logs, etc.)
  • Payout request forms
  • Support for termination date, if applicable
  • Form 1099-R for participant payouts
  • Loan request forms

Several of these documents might be kept in an employee’s personnel file. Therefore, plan management should ensure these files are complete, clean, organized, and consistent. This will make it easier for management to gather the requested information, improving the audit’s efficiency.

Many plans are set up so that most of the features are available electronically, meaning participants can go online to change their deferral amount, request a payout of their account balance, change investment options/allocations, or request a loan. It is, therefore, possible that the plan sponsor does not have documentation for these transactions. However, since many of these items affect employees’ payroll, plan management will still be responsible for ensuring that the changes are applied appropriately, and that documentation is maintained to support the changes.

Questions about 401k document organization?

Choosing an auditor well-versed in benefit plan audits can be extremely helpful. Smith Schafer frequently works with 401k plans undergoing their first required audit and find many of the plan sponsors are not aware of all the requirements to get the audit completed and timely filed with the Plan’s Form 5500.

If you currently have a small plan but anticipate growing, we recommend you start addressing requirements leading up to the first audit. The more prepared your company is when the audit starts, the more time and resource-efficient both your company personnel and the auditor will be. If you have any questions or have an employee benefit plan that requires an audit, feel free to contact us at [email protected], and we will assist you.

2022 Business Valuation Considerations

2022 Business Valuation Considerations

Business Valuation Insights Post COVID-19

More than two years after COVID-19 changed the world, business valuations are still challenging. At the midpoint of 2022, the idea that things have returned to ‘normal’ is certainly debatable. In many instances, historic valuation inputs, specifically past performance, cannot be taken as an indication of future performance. In addition, market volatility driven by supply chain disruptions, rising interest rates, and inflation, have only served to complicate matters.

In normal times, getting an accurate valuation of a business or other asset can be challenging. There are multiple inputs that must be considered, and a value derived based on various assumptions. In disputes, two experts can arrive at quite different values depending on the calculation method. Now, there are several other considerations for valuation experts and business owners to weigh. To help clients, prospects, and others, Smith Schafer has provided a summary of 2022 issues impacting business valuations below.

Risks and Market Conditions

COVID-19 created significant market risk for companies during and after the height of the pandemic. Ongoing risks that need to be considered range from the larger economic environment in which a company operates to credit, liquidity, and forecasting risks.

For example, businesses in some industries may never see the same level of economic demand or production. The same can be said for companies whose demand surged as for those who saw revenue drop substantially. The resulting impact to future cash flows can be unstable and is a significant risk that needs to be considered in a valuation.

And even now, short-term financial and economic forecasts are still uncertain. Some regions continue to experience COVID spikes. Rising energy and material prices are affecting the bottom line and further straining company budgets. How much of this can still be accredited to COVID? It’s important for businesses, especially those exposed to a global supply chain, to account for forecasting risk in a valuation.  

Inflation and the Rising Interest Rates

Since January 2022, markets have become increasingly volatile, reversing a trend that appeared to mark overall economic growth and recovery. Rising interest rates and the threat of inflation are causing the cost of capital to go even higher. Long-term inflation estimates in the U.S. increased from two percent at the height of COVID to 2.6 percent as of May 2022. For valuations, inflation expectations play heavily into the discounted cash flow method (DCF). It also means that businesses may find it harder to create and preserve value.

And with a predicted recession in 2023, business owners with an eye on an upcoming transition will need to do their best to stay ahead of inflation. McKinsey data suggests that to do this, earnings need to grow faster than the rate of inflation, which can be hard for most companies to achieve.

Business Transitions

It’s estimated that three-quarters of current business owners will plan their exit in the next 10 years. As the process unfolds, some of the traditional paths are already going by the wayside.

In business sales, finding strategic buyers isn’t the main priority for most sellers anymore. A Deloitte study found that only 37 percent of potential sellers identified strategic buyers, compared to 52 percent pre-COVID. Additionally, new business combinations and alternative transactions are beginning to replace traditional buy-sell agreements. More businesses are restructuring, which includes reorganizations, changes to working capital, cost reduction, and legal entity changes.

For buyers, access to labor and technology are two driving factors. It’s becoming more common to see buyers snap up companies not for assets or market share but for talent. Strategic partnerships that result in new capabilities are also happening more.

In all these transitions, an accurate, reliable, and current valuation is necessary.

The message here is that what was once a typical valuation transaction is far from guaranteed. Business owners will need to consider their goals for the transaction more than ever. Depending on the outcome, there may be multiple ways for a valuation to support that goal. Talking with a business valuation advisor first can help to ensure the valuation process and methodology aligns with the result.

Valuation Multiples

Public market valuations, which are often seen as a precursor to private and smaller markets, are changing. Multiples for smaller companies are often higher than for larger entities. This is especially true for tech companies that trade based on multiples of revenue and not EBITDA. As revenue expectations are still hard to develop, it can be difficult to forecast the next six months if it’s unclear whether COVID performance was an anomaly or an indicator of future performance.

Using forward-looking multiples to evaluate business value can in some cases better reflect COVID-related pricing and earning impact.

Overall, the focus now seems to be more on forecasts and budgets and less on past results. Consideration needs to be paid to more than just the entity. It’s important now to evaluate all inputs and variables affecting output. The more inputs that the company can control, the more exact and reliable the valuation. A cost or asset valuation approach may be a better indicator of performance in the current environment, though each situation is unique.

Pending Guidance

It’s also worth noting that more guidance for valuation considerations is likely to be released before the end of 2022. One piece of guidance that’s currently in development concerns estimating the discount rate for the fair value measurement of intangible assets.

Next, the discounted cash flow method (DCF) is being questioned for its use in business valuations. Analysis suggests that DCF can be used to value bonds, but not businesses because it cannot accurately represent “the causal mechanisms behind market values.” This is an interesting development, because many valuation experts used DCF during COVID due to its very nature of capturing the net present value of cash flow.

Finally, regulatory requirements to include Environmental, Social, and Governance (ESG) factors need not be included in the cost of capital this year – but that could change in the future. Nevertheless, more buyers and sellers are considering ESG effects on valuations now. 

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Valuation approaches post-COVID are as varied and unique as the entities and assets they look to value. A single approach does not work for all transactions, and especially now there is an even greater need for careful, objective analysis. If you have questions about the information outlined above or need assistance with an asset of business valuation, Smith Schafer can help. For additional information, click here to contact us. We look forward to speaking with you soon.

6 Accounting Best Practices for the Transportation Industry

6 Accounting Best Practices for the Transportation Industry

Accounting is an integral part of any business. The transportation industry is growing steadily, and changes come quickly and unexpectedly. Therefore, it is crucial to have a good understanding of your business’s financial standing and maintain sound accounting systems. This article will discuss six accounting best practices to keep your books up-to-date and help create solid accounting protocols for your business.

Key Accounting tips for Transportation Companies

1. Create Separate Business Credit Card Accounts

Some transportation companies in the early stages make the mistake of interweaving personal and company finances. However, this makes it difficult to judge the company’s financial health properly. Keeping the two separate improves cash flow tracking, tax filing, and financial forecasting. Utilizing company cards more efficiently captures expenses rather than having owners or employees charge personal cards and get reimbursed. For example, having employees use company cards for items such as fuel and food for travel can make it easier to record these items to expenses when they are charged instead of waiting for receipts to be submitted for reimbursement.

2. Utilize Up-to-date Accounting Software

A critical business decision is determining which software you use to track your income and expenses. Transportation companies are dealing with an increasing amount of data that must be processed and recorded accurately to provide meaningful insight to stakeholders. Outdated accounting systems may be unable to cope with mass volumes of data, resulting in inefficient and ineffective decision-making.

The most popular product is QuickBooks; other options include Xero or FreshBooks. However, you will need to evaluate options as each has its advantages and disadvantages.

3. Review Accounting Transactions Daily

Maintaining a tight grip over your accounting processes enables you to prepare, strategize, and minimize errors. Utilizing data integration to your accounting package streamlines data entry, but you will still have transactions that will not automatically be recorded, such as accounts receivable transactions. It is important to record and categorize expense outflows and earnings daily.

4. Examine Financial Statements Monthly

Maintaining accurate financial records goes far beyond simple year-end tax preparation. Reviewing financial statements regularly sets your transportation company up for long-term financial health and success. A monthly review will help you proactively identify if you are meeting budgets and, if not, help to timely adjust your strategy to meet goals. It also allows you to notice any abnormal transactions appearing on the books to investigate and catch fraudulent activity quicker.

5. Manage your Receivables

An active role must be taken in managing your receivables. Making sure not to allow receivables to be outstanding for more than 30-60 days helps keep cash flow strong and have cash needed to pay bills. Managing receivables will also help you identify potential clients that are slow to pay and possibly choose other customers to do business within the future.

We recommend having a reliable method to manage receivables and establish formalized credit policies with your customers, to help maintain consistently cashflow.

6. Hire Experts

As a transportation company grows, leadership eventually reaches a point where maintaining accurate accounting records becomes too complicated and time-consuming to handle, even with the help of accounting software. It becomes necessary to hire an expert in-house or outsource an accountant. An accounting expert will help:

  • Prepare financial statements and reports
  • Handle audits
  • Help make evidence-based, timely financial decisions
  • Faster turnaround time

Less time worrying about your accounting means more time to focus on providing excellent service to your customers.


Following the above best practices will help streamline processes to keep your accounting up-to-date and accurate. This helps you move forward with strategic planning and make the best decisions for your transportation business.

Need help? Smith Schafer offers customizable accounting services. Whether you need help managing the daily routine or assistance with more strategic decisions, such as software analysis, our accounting professionals can give you back valuable time and resources so you can focus on growing your transportation company. Contact us today to learn more about how we can help while providing accurate, timely, and professional financial advice.

2022 IRS Backlogs & Taxpayer Service Updates

2022 IRS Backlogs & Taxpayer Service Updates

The IRS has been busy. In the past two years, the agency has processed trillions of dollars in pandemic relief funds, adjusted to often-changing tax deadlines, and dealt with several complex new tax laws. At the same time, funding was 20 percent lower than in 2010. Understaffed is the understatement of the century.

The perfect storm of COVID-19, lack of funding, and understaffing has resulted in record backlogs and delays in virtually every aspect of interacting with the agency. In fact, 2021 went down as the worst year ever for IRS customer service. When the 2022 tax season started, the agency still had 11.7M unprocessed tax returns. Since then, leaders have taken several steps toward corrective action for a better taxpayer experience including the mass hiring of new employees.  

Still, the average Minnesota taxpayer may be left wondering if the experience will really be different and what they can expect in the second half of 2022. To help clients, prospects, and others, Smith Schafer, has provided a summary of the key details below.

What’s Been Going on at the IRS?

Backlogs are a routine part of tax return processing for the IRS; normal numbers are less than one million returns at the start of each tax season. Unprocessed returns often arise due to missing information, math errors or other mistakes, and manually processing paper returns.

In 2021, taxpayers dealt with issues like refund delays, an inability to connect with an agent on the phone or in-person, e-filing barriers, and lack of information about refund status online. An example of how poor customer service and systemic staffing issues came to a head was a Taxpayer Advocate report that one person at the IRS handled about 13,000 calls last year. It’s little wonder why most taxpayers who called in couldn’t ever connect with an agent.

This year, the nearly 12 million unprocessed returns in January 2022 could be traced back to changes involving COVID-19 tax laws and a lack of adequate staff to manage the change. The IRS responded by adding overtime, repositioning its workforce, and suspending some automatic notices.

Coming off tax season, while the IRS has slashed its number of unprocessed returns, refunds may still take longer than usual. The following are all contributing factors, including:

  • Higher than average return errors because of Economic Impact Payments
  • Temporary tax law changes related to the Earned Income Tax Credit
  • Amended returns from 2020

The IRS in 2022

All that considered, the IRS is only on slightly better ground in the second half of 2022. The pandemic didn’t create holes in the agency so much as it revealed them. A June 2022 tweet featuring a picture of an IRS facility in Austin, TX with an entire cafeteria of paper returns waiting to be processed. The tweet’s author, a tax policy counselor for the U.S. Treasury, said that the IRS is largely still operating as a “paper-based agency with a heavy reliance on manual processing.”

Then there was the controversial decision to destroy 30 million paper information returns in March 2021, which became public in 2022.

As the federal agency that Americans tend to interact with the most, the IRS is already subject to high expectations for customer service. Clearly, there is more work to be done both internally with staffing, technology, and operations, and externally with the agency’s reputation among taxpayers.

And while the IRS has been diligent in alleviating the backlog of returns and trying to answer taxpayer questions promptly, delays are likely to persist for some time.  

The IRS’s website has operational updates for common taxpayer questions and scenarios related to actions and follow-up requirements. Of note:

  • “[A]ll paper and electronic individual returns received prior to October 2021 have been processed if the return had no errors or did not require further review.”
  • As of June 1, 2022, 10.5 million unprocessed individual tax returns remained.
  • 2 million returns have errors
  • 2.1 million returns are amended individual tax forms 1040-X
  • 8.5 million returns are paper returns that will be manually processed

These include both new 2021 tax year returns and those previously received. Any return that needs to be manually reviewed can expect a refund on average in 90 to 120 days, but that estimate can vary depending on the nature of the error.

Also of note, the IRS said, “If you filed before October 2021 and Where’s My Refund? does not have any information, your return has been opened but work on it has not begun.”

Status of Amended Payroll Tax Returns

Another area where business taxpayers have been negatively affected is retroactively claiming the Employee Retention Tax Credit for 2020 or earlier quarters in 2021. Some taxpayers have been waiting since 2020 for their ERTC refund. This has resulted in safe harbors and added relief for affected businesses unable to pay an artificial payroll tax bill if the ERTC refund hasn’t been processed yet.

As of June 8, 2022, there were still 3.5 million unprocessed Forms 941.

The total amount of unprocessed Forms 941-X sits at around 222,000, and the IRS said that some of these can’t be processed until the related 941s are processed first.

Two IRS service centers in Cincinnati and Ogden are handling these requests, as staff at those locations have been trained on COVID-19 tax credits.

Solving the Problems

Moving forward, the agency has two primary methods to improve the taxpayer experience: more funding and more people.

Congress granted the agency $12.6 billion – higher than its current budget, but still less than what was originally proposed. That means more money for taxpayer services, enforcement, operations support, new technology, and better business systems. It was also permitted to direct-hire thousands of new employees in 2022 and beyond. Fast-tracking new hires at in-person service centers across the country and elsewhere within the agency means more support for taxpayer questions – quicker.

Online and phone tools have also expanded since 2021. Phone callback rates increased 70 percent in 2022. Online self-service tools that taxpayers actually find useful have been more common: online pay and the ability to update personal information are just two of these.

Through the mail, the IRS hoped to prevent mistakes on returns before they even happened – and thus keeping refund times as low as possible – by sending taxpayers letters that calculated total amounts of economic impact payments or child tax credit advance payments. 

Introducing some automated systems have also helped to reduce the backlog and improve taxpayer service. This has varied from online and phone chatbot assistance to help with common questions to a new tool that increases reviews of returns with errors from a few dozen processed returns per hour to 1.5 million returns per week.

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While the IRS has taken significant steps to address the backlog, and other issues, it is not likely conditions will immediately improve. This means Minnesota taxpayers will need to exercise significant patience when dealing with the agency. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Smith Schafer can help. For additional information, click here to contact us. We look forward to speaking with you soon.