IRS Delays Triggered Some Premature Collection Notices

IRS Delays Triggered Some Premature Collection Notices

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IRS Delays triggered some premature collection notices

The tax season opened Monday. Just three days later, the IRS announced it was suspending the mailing of certain automated notices because of a backlog in processing returns. The move would avert additional correspondence with taxpayers that would only add to the paper logjam and possibly prevent even more stress for filers.
As of Dec. 31, the IRS had 6 million unprocessed individual returns, including returns for the 2020 tax year.
The agency didn’t provide a detailed list of which notices it would be suspending, only referencing one type of letter, sent to taxpayers when the IRS has credited payments but has no record of the tax return being filed.“ Taxpayers who get a notice from the IRS are often petrified,” said Roger Harris, president of Padgett, a Georgia-based accounting firm. “All they want is the ability to find out what happened. But when they can’t get that help, it further builds their frustration and panic.”

Obviously, this direction has alarmed those taxpayers who conclude their original returns are probably in a pile in some IRS office waiting to be processed. Wouldn’t mailing another return just cause more confusion?

It could certainly make people anxious. In one letter shared with me, a taxpayer sent a check for more than $18,000 with the return only to receive the following response from the IRS:

“If you don’t file a return or contact us, you may lose this credit. The Internal Revenue Code sets strict time limits for refunding or transferring credits.”

That wording would freak me out!!

“I mailed in my tax return April 2021 but paid what was due online,” one Reddit user wrote. “Now of course I have no idea if they got my return. Should I [mail] my tax return in or wait another 2 months to see if they finally process the first one? I don’t want to lose my quite large payment credit. Knowing my luck if I sent a copy they would process both of them and tell me I owe double.”

“Man if the IRS is that backed up then why did they send out all these auto-generated forms? Inconvenience for everyone, including the IRS reps who have to handle all these calls.”

Perhaps finally the IRS realized the absurdity of the request for more paperwork.

“In many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed,” the agency statement said. “Stopping these letters — which could have otherwise been sent to thousands of taxpayers — will help avoid confusion.”  Lawmakers and tax professionals are pressing the IRS to do more to assist anxious taxpayers. Members of Congress sent Treasury Secretary Janet Yellen a letter asking for taxpayer relief. “Recognizing the extraordinary challenges of the COVID-19 pandemic, in addition to the IRS operating with antiquated technology and a constrained budget, we find the current situation alarming,” the letter said.

Among the list of recommendations from the lawmakers was a request that the IRS pause automated collections until at least 90 days after the tax deadline on April 18.

Given the severity of the backlog in processing returns, it makes sense for the IRS to offer a “reasonable cause” penalty waiver without making people justify the request, argues the American Institute of Certified Public Accountants (AICPA). Under this type of waiver, the IRS says it will consider a sound reason for failing to file a tax return or pay taxes that are due.

Typical situations that may warrant penalty relief might be a natural disaster, death or serious illness. I think the pandemic-related processing delays easily qualify for reasonable cause. The IRS should temporarily suspend all automated compliance actions, as it did with the onset of the pandemic, urged the Tax Professionals United for Taxpayer Relief coalition, which represents a diverse group including Latinos, African Americans, small businesses and low-income taxpayers.

The IRS continues to attribute the large backlog to underfunding and challenges due to the pandemic. “Our employees have worked hard, long hours during the pandemic to assist taxpayers and successfully modify our systems, despite lacking the funding that we need to adequately serve the American people,” Rettig said. Years of budget cuts and outdated technology put the IRS in this position. But until the funding issue is fixed, the agency should do whatever is in its power to make things easier for taxpayers and its slammed employees.

The agency’s statement about what notices are going to be stopped was unnecessarily opaque. What other specific notices and related actions are being suspended?

We don’t know.

Which ones will keep going out automatically?

The IRS didn’t say.

What should folks do if they have already received one of the notices that the IRS is suspending for others? “There is a sense of despair right now,” said Melanie Lauridsen, senior manager for tax policy and advocacy with the AICPA. “People are getting these notices and they can’t even get in touch with the IRS. So what do they do? We’ve all been impacted by covid, and we can absolutely respect that. But it’s really hard to tell someone who has a notice hanging over their head and it begins to escalate.”

If you receive a notice from the IRS, ParsonCPA can take care of it for you.  Call our office with any questions (502) 231-3441.

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