STATE TAXPAYERS DESERVE FAR BETTER FROM IRS

With the new year just six weeks old and the April 15 tax filing deadline still two months away, many Californians have yet to do more on their tax returns than collect the forms they’ve received about income, property and stock sales, and interest they paid on home and student loans. But experts say it’s safest and best to show a bit of urgency in filing returns to prevent fraudsters who might get access to your personal information from stealing tax refunds by filing false claims. Early filing also makes it more likely to have returns processed quickly, which especially matters if you expect the government to owe you money, and which avoids the delays that are more likely closer to the filing deadline. This makes it crucial for the Internal Revenue Service to have clear rules about what is and isn’t taxable income.

Yet nearly eight months after Gov. Gavin Newsom and state lawmakers cut a deal to lessen the sting of higher gas prices and other examples of inflation by giving some $9.5 billion to the Californians who paid state taxes in 2020, the IRS has yet to decide whether the refunds — and such payments in other states — were untaxable gifts or taxable income. It wants Californians to delay filing returns.

This uncertainty affects 16.5 million state households that received payments from $200 to $1,050 but can’t file with confidence in how the agency will respond. Among those who think this is ridiculous and unacceptable is the IRS’ internal watchdog. In a blog post on Thursday, the office of the National Taxpayer Advocate wrote, “This was a known issue, with ramifications for tens of millions of taxpayers, tax return preparers (who still prepare most federal income tax returns) and tax software developers. The failure to have identified and resolved this issue before the filing season suggests that someone, or everyone, was asleep at the switch.” This point is underscored by the fact that in October, just as the first refunds were being distributed, the Los Angeles Times raised the federal taxation issue when reporting that state officials had declared they weren’t subject to California income taxes.

Grousing about the IRS is an American tradition. And the agency only invites more scorn with this.