It’s TaxQuips time from TaxMama.com®
Today TaxMama® wants to tell you what the IRS, the Taxpayer Advocate, and a coalition of tax professionals just did for you.
Dear Family,
Last week was an interesting week in Tax Land.
Erin Collins, the Taxpayer Advocate, testified before Congress about the millions of 2020 paper-filed tax returns, amended returns and amended payroll tax returns that as still unprocessed. Millions of people are still waiting for refunds from 2020.
(Ironically, late last year, the IRS closed down their Fresno facility which was primarily dedicated to processing paper returns and communications – because it was scheduled to close before COVID!)
In addition, people who paid by check, instead of electronically, are still reporting that their payments have not been posted to their taxpayer accounts.
Millions more people received notices from the IRS and were required to respond by either sending snail mail – or sitting on hold with the IRS phones, sometimes for hours. The bulk of those paper responses have not been processed.
As a result taxpayers are getting threatening collections notices, even though they have filed amended returns showing no balance due, paid their tax debts by paper check, or responded to IRS notices to explain why the IRS computer didn’t find income reported in a place in the tax return, where the IRS computer wasn’t expecting to find it.
Ms. Collins made several recommendations on how to fix some of the problems. (I gave you the link to her testimony above.) One of which was to prioritize the processing of original and amended paper tax returns through an “all hands-on-deck” surge strategy.
Also last week, a coalition of tax and legal professional societies had a meeting discussing the letters they sent to the IRS, the U.S. Treasury, the Senate, and the House of Representatives, asking for some immediate relief from all the erroneous notices.
THE IRS SUSPENDS NOTICES
The very next day, the IRS released this announcement:
The IRS announced today the suspension of more than a dozen additional letters, including the mailing of automated collection notices normally issued when a taxpayer owes additional tax, and the IRS has no record of a taxpayer filing a tax return. (Scroll down on this page to see the notices IRS is not sending out – for a while.)
The Good News. This is great news for the millions of innocent taxpayers who have been terrorized by notices of unfiled returns or notices of intent to levy, despite having filed and paid their taxes – sometimes, nearly a year ago.
These notices have caused an intense hardship for taxpayers who filed and paid in good faith on paper. Or who made mistakes and amended their tax returns – on paper. Since the IRS computer didn’t get the data input, their automated collections system went to work, spewing out notice, after notice. And these taxpayers had to invest their own time, sometimes, taking time off from work to sit in the long IRS phone queue – and then getting no help. Or they had to pay a tax professional to handle it for them – even though they owed nothing.
AND to make it worse, even tax professionals had a hard time reaching the IRS and getting these issues addressed and resolved. Why? Because, since the returns and payments were not in the system, no one could reach out into the paper mountain to find and enter the correct client’s documents.
So this automated persecution is about to stop. No new automated notices are being sent out.
The Bad News. What’s the bad news side of this for taxpayers? There are also millions of taxpayers with significant balances due who have not paid their taxes. Many have made no effort to do anything about it – like setting up an installment agreement, applying for an offer in compromise, or even to increase their current withholding. They won’t be getting these notices from the automated collections system (ACS) either. Those notices are a wake-up call to get into compliance. Now, they will just get deeper and deeper into tax trouble.
And of course, there are the tax professionals who represent tax delinquents.
Their biggest source of new clients has been these IRS levy notices. Now that gravy train is stalled. Taxpayers in trouble will have to voluntarily seek out their help, instead making those panicked calls when they are about to lose their bank accounts or wages.
What advice can I give you currently?
If you are one of those people who have been getting erroneous notices, ignore anything that arrives within the next week or two. Anything later than that – I would suggest you respond to it.
If you know you are delinquent – either you owe money or you haven’t filed tax returns. Take care of this immediately. File the unfiled returns. And make arrangements to pay your past due taxes. After all, this suspension isn’t going to last long. It never does.
And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion
To make comments please drop into the TaxQuips Forum.
The suspended notices include:
| Notice/Letter Number | Title | Description |
|---|---|---|
| CP80 | Unfiled Tax Return | This notice is generally sent when the IRS credited payments and/or other credits to a taxpayer’s account for the tax period shown on the notice, but the IRS hasn’t received a tax return for that tax period. |
| CP59 and CP759 (in Spanish) | Unfiled Tax Return(s) – 1st Notice | IRS sends this notice when there is no record of a prior year return being filed. |
| CP516 and CP616 (in Spanish) | Unfiled Tax Returns – 2nd Notice | Request for information on a delinquent return as there is no record of a return filed. |
| CP518 and CP618 (in Spanish) | Final Notice – Return Delinquency | This is a final reminder notice when there is no record of a prior year(s) return filed. |
| CP501 | Balance Due – 1st Notice | This notice is a reminder that there is an outstanding balance on a taxpayer’s accounts. |
| CP503 | Balance Due – 2nd Notice | This notice is the second reminder that a there is an outstanding balance on a taxpayer’s accounts. |
| CP504 | Final Balance Due Notice – 3rd Notice, Intent to Levy | The IRS sends this notice when a payment has not been received for an unpaid balance. This notice is a Notice of Intent to Levy (Internal Revenue Code Section 6331 (d)). |
| 2802C | Withholding Compliance letter | This letter is mailed to taxpayers who have been identified as having under-withholding of Federal tax from their wages. This letter provides instructions to the taxpayer on how to properly correct their tax withholding. |
| Notice/Letter Number | Title | Description |
|---|---|---|
| CP259 and CP959 (in Spanish) | Return Delinquency | IRS sends this notice when there is no record of a prior year return being filed. |
| CP518 and CP618 (in Spanish) | Final Notice – Return Delinquency | This is a final reminder notice that we still have no record of a prior year tax return(s). |
