Last year I wrote about one of my clients, James Smith. The IRS “helpfully” changed his Employer Identification Number (EIN) for his business without telling him, and we have had to deal with numerous IRS notices relating to the EIN. Given that all payments were timely made by Mr. Smith and his businesses, eventually the issues will all be resolved.
I do have to use eventually because I have no idea when the IRS will resolve the issues. For example, in August 2019 we responded to an IRS notice alleging that Mr. Smith’s business owed payroll taxes and a civil penalty (for not paying those taxes) for 2012. We responded with all backup paperwork showing the taxes were timely paid. We have received a string of letters from the IRS–the first one was on October 21, 2019–stating:
We haven’t resolved this matter because we haven’t completed all the processing necessary for a complete response. We’ll contact you again within 60 days with our reply. You don’t need to do anything else for now.
The eighth such letter (dated March 8, 2021) arrived in yesterday’s mail. This is more annoying than anything else, but it gives the reality of corresponding with the IRS today: Corresponding with the IRS today is broken.
There’s no other way to put it. Responses aren’t read. Mr. Smith’s current business somehow got changed to not being an S-Corporation in the efile system. We wrote a letter to the entity unit providing proof that it is an S-Corporation (the IRS letter accepting the election to be an S-Corporation). We’ve been waiting 14 months for that to get resolved. The 2020 extension for Mr. Smith’s business had to be mailed to the IRS because they still haven’t fixed it.
Another client’s C-Corporation return was processed as an S-Corporation for 2017. The C-Corporation owes significant tax (over $100,000) but cannot pay it. Why? Because if they were to pay it, the funds would be returned. As processed, the S-Corporation doesn’t owe tax. That entity wants to pay the tax it owes but until the IRS resolves the matter it cannot. And I will–once it is resolved–ask for abatement of the late payment penalty and interest because this was all due to IRS error.
Meanwhile, I and other tax professionals are dealing with the IRS sending out Notices of Deficiency to clients. These relate to notices from the Automated Underreporting Unit (AUR) alleging unreported income. These clients all responded but because the IRS hasn’t read the responses, the Notices of Deficiency were mailed. Now the clients must file Tax Court petitions in order to protect their rights.
Yes, we’re dealing with a pandemic but some of this is on Commissioner Rettig. He announced in January that all mail is being timely opened. That may be the case (I have my doubts) but there’s no chance that it is being timely processed. Opening the mail, removing checks, and then putting it in bins is slightly better than not opening the mail. And don’t get me started on the string of erroneous IRS notices.
Yes, I realize we’re in a pandemic but I have been able–with a few minor hiccups–to run my business. The IRS can do better. And I’ll expound on that in the next post in this series.