Rocklin resident Gary McIntyre does his taxes as soon as the filing season opens — not because he enjoys it — rather he knows the quicker you file, the faster you get your refund.

Just as 70-year-old McIntyre was ready to electronically file his federal return, he received a 1099-MISC form in the mail with zero instructions on how to use it. He and other California taxpayers who were given a California inflation relief payment of $600 or more were automatically sent the form, which ignited widespread confusion.

McIntyre’s response: “Oh crap.”

“We were scouring the internet, we were reading the IRS publications,” he said “we were trying to get the answers everywhere…everywhere without hiring some expensive lawyer.”

Both the California Franchise Tax Board, and later the Internal Revenue Service, said the California inflation relief — also known as the Middle Class Refund — is not taxable income and should not be reported on 2022 tax returns. The IRS guidance came weeks after both the filing season opened and several readers including McIntyre reached out to The Bee for answers.

“The failure to have identified and resolved this issue before the filing season suggests that someone, or everyone, was asleep at the switch,” National Taxpayer Advocate Erin Collins wrote on her blog in February.

And there’s still confusion over what to do if you already filed a return paying tax on the refund. The IRS said it will issue guidance at some point on that question.

The chaos is the latest in a lengthy string of troubles the tax agency has faced in recent years.

In 2021, for instance, only 11% of consumer calls to the IRS reached a representative. The average response time for a mail inquiry was 251 days.

Now the IRS could be flooded with a new series of consumer inquiries — a deluge that could have been prevented.

‘Not getting the service they need’

At his Senate Finance Committee confirmation hearing last week on his nomination as IRS commissioner, Daniel Werfel agreed improvements in consumer service are badly needed.

“Hardworking, honest taxpayers who need assistance in meeting their tax obligations are not getting the service they need,” he said, as he pledged to improve agency operations.

Last year’s Inflation Reduction Act authorized an additional $79.6 million to help the agency to modernize and improve its services.

Collins and advocacy groups have been warning for some time that operations are woefully ineffective in many ways. In the California situation, as well as with a similar tax break in Virginia, the IRS “missed the boat.”

“The impact of the delay in providing timely information and guidance is hard to overstate,” Collins said.

Virginia officials had the same view. Its Department of Taxation said “if you itemized your deductions, you may be required to report the rebate amount you received as income on your federal return.”

Software developers have had to devote time and resources to figuring out what to do — and face an IRS ruling that’s different from what they assume.

The delay in guidance could mean further delays in settling taxpayer accounts.

“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,” Collins wrote.

What if I already claimed my Middle Class Refund?

If you claimed your inflation relief dollars as income on your state return before guidance came out, you have a couple of options.

Claudia Stanley, a CPA from Fresno, said you can either file a superseding or amended return to update your information. Tax Board spokesman Andrew LePage gave similar advice in a previous Bee story.

California tax confusion: Already filed your return? Here’s what you should (and shouldn’t) do

Advice on what to do if you already claimed your refund on your federal return will be different depending on who you ask.

In a February email to The Bee, LePage said the IRS informed the tax board that it was “looking into how it will handle these returns” and “asks that no action be taken” until guidance is given.

The Bee then contacted the IRS, which referred us to its February news release that does not include the answer on next steps taxpayers should take to correct their returns.

Stanley, who’s been a CPA for more than 30 years, said she doubts the IRS has the “mechanism” to examine returns and reverse those who’ve wrongfully claimed their refunds.