Taxable Talk

Taxpayers who filed after April 15th are being paid interest on their refunds. The IRS issued a press release earlier this week, stating:

This week the Treasury Department and the Internal Revenue Service will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.

The interest payments, averaging about $18, will be made to individual taxpayers who filed a 2019 return by this year’s July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.

In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.

Everyone else will receive a check. A notation on the check − saying “INT Amount” − will identify it as a refund interest payment and indicate the interest amount.

Several clients asked this morning about mysterious direct deposits from “IRS TREAS 310,” wondering what these were. That’s the interest on your refund from April 15th until the date you filed.

Do note that the interest you receive is taxable. You will receive a Form 1099-INT in the mail from the IRS next January and you will need to include that on your 2020 tax returns.

A brief story in today’s Wall Street Journal (Pay$ Link) states that Secretary of the Treasury Mnuchin may consider extending the July 15th tax deadline (which was, of course, originally April 15th) again. Quoting the Journal,

Asked in an interview at a virtual Bloomberg event if he was considering another delay to Sept. 15, Mr. Mnuchin said it is possible.

“As of now we’re not intending on doing that, but it is something we may consider,” he said.

My reaction is what I titled this article: No, please No. I and every other tax professional would like this Tax Season to end.

The article also notes that another stimulus program is now being considered, but Republicans would want it to be very targeted. Given that Democrats want everything under the sun, it will be quite interesting to see what (if anything) comes out of Congress this Summer.

This morning, our IRS Stakeholder Liaison held a conference call on the current IRS situation. One unfortunate piece of information that was noted is that not only does the IRS have a backlog of incoming mail (estimated at well over 10 million pieces), there is a very large backlog of outgoing mail. As of early this week, the IRS has a backlog of 23.5 million notices.

With the IRS gradually reopening, this is a backlog that’s going to take months to resolve. The IRS has the capability of mailing 1.5 million notices per week. That means there’s nearly a four month backlog. This week, I received an IRS notice for a client for the first time in months, so the IRS is starting on this. Per today’s call, the IRS is concentrating on notices that are time sensitive (such as Notices of Deficiency).

There are also going to be issues with the notices. These notices are computer generated, so the deadlines in the notices will be wrong. The IRS is including a flyer explaining this along with the new deadlines, but how many taxpayers actually read an insert?

The 23.5 million notices does not include notices that will be generated based on returns as they are processed, and the backlog of correspondence that must be processed. I’m telling clients that have responded to IRS notices to think that it will likely be several months before they hear anything.

Unfortunately, there’s nothing the IRS can do at this point but to start on the process and let practitioners know of the issues. This is a year to be patient with the IRS.

On June 1st the IRS opened offices in Kentucky, Texas, and Utah. That’s important for those of us in the tax professional community as two of the major IRS Service Centers for processing returns are in those states (Austin and Ogden). Austin also includes the unit that processes ITIN applications (a news report said there’s a backlog 250,000 applications). Ogden has one of the three CAF units (the unit that processes power of attorney and tax information authorization forms); that was backlogged even before the shutdown.

The IRS is opening more offices later this month:

• Georgia and Tennessee: June 15th
• Missouri and Michigan: June 15th
• Indiana and Ohio: June 29th
• California, Oregon, and Puerto Rico: June 29th

This includes the Atlanta and Memphis Service Centers on June 15th and the Fresno Service Center on June 29th. Atlanta and Memphis are not used for processing returns but are used for numerous other IRS operations including correspondence audits, offers in compromise, and automated underreporting unit notices. Fresno is a major processing center for returns.

This is good news for everyone (taxpayers, tax professionals, and IRS employees). Unfortunately, it is going to take many months for the paper backlog to be resolved.

Two clients asked me about their tax refunds this week. Both had filed several weeks ago, and each had received their state refunds. Neither had received their federal refunds. With the IRS phone lines for practitioners now working (albeit with a reduced staff), I called the IRS for both clients.

The first client’s return was filed at the end of March. The helpful IRS phone agent told me there was a ‘processing error’ with her return, and the problem is normally resolved within one to four days by the “Error Resolution Department.” Unfortunately, that departments isn’t working right now, so her return (and likely hundreds or thousands of others) is waiting for the IRS Service Centers that process returns to reopen.

The second client filed just one week later; their return simply hasn’t been processed. Yes, it was electronically filed, but for some unknown reason it’s sitting in a queue (virtually, I suppose) waiting for some IRS employee to hit “Run.” Again, with no IRS employees working in the Service Centers right now that return could be processed today or a month from today or months from today.

My suspicion is that IRS Service Centers will reopen in June, and that the unprocessed returns and returns waiting for error resolution will be resolved then. On the other hand, if you have to mail a tax return that return will be processed sometime. I have a couple of 2016 returns that had to be mailed, and I told my clients I expect they’ll be processed by year-end.

I’m not optimistic about correspondence sent to the IRS. I have two correspondence audits and several other open issues with the IRS. In good times the IRS can takes many weeks to answer the mail; I’ll be thrilled if I receive responses by October.

Everyone needs to have some patience. This isn’t the choice of the IRS, and they want to resolve all the issues, too.

We owe tax almost every year. Yes, I make estimated payments, but my business has been growing, investments are making money, so my tax bill goes up every year. That means when I initially looked to see when our stimulus payment (aka “Recovery Rebate” payment) would come on the IRS’s “Get My Payment” website, nothing showed for us.

Additionally, we always file an extension as we wait for a K-1 that shows up in late July or early August every year. The IRS’s website was designed for 2019 filers; the IRS later added 2018 information. That was another reason it didn’t work for us.

On the weekend of April 25th, the IRS added 2018 capability and the ability for those who file $0 returns to use the Get My Payment website. (Zero dollar returns are common for individuals who file extensions, paying the tax they owe, and then later file the actual tax return.) On April 25th, I entered the required information.

On Monday, May 4th, the website noted that the stimulus payment would be direct deposited on Wednesday (May 6th). The IRS was wrong: the money was in the account on Tuesday (May 5th). That’s ten days, and the IRS deserves kudos for this. Indeed, given the constraints the IRS is operating under, this is a superb performance.

Yes, more work is needed for the Get My Payment website. It doesn’t work for expatriates (individuals residing outside the United States), many of whom do qualify for the payments. But overall the IRS deserves praise for getting this done and being able to serve most Americans within 30 days of the legislation passing.

Something I missed was an article in the Washington Post giving details of mailing stimulus payments. The Motley Fool took it and laid out the dates that stimulus payments will be mailed. I note those dates below.

But there’s another issue: Let’s say your Adjusted Gross Income (AGI) is $55,000 and you haven’t filed your return. You file it on May 1st. Will you get your stimulus check the week of May 29th (assuming you don’t use direct deposit)? Probably not. (The IRS will be mailing checks out for that AGI range that week.)

The issue here is it takes time for both a tax return to get into the IRS computer system and for the IRS to mail a check. First, it takes four weeks (on average) for a return to post into the IRS computer system from date of filing. Second, it takes two weeks (on average) for the IRS to issue a check. That is, if the IRS hits a button to issue you a check today, you would receive that check in two weeks.

So let’s look at the mailing dates:

• AGI of $10,000 or less: Week ending April 24
• AGI of $10,000 to $20,000: Week ending May 1
• AGI of $20,000 to $30,000: Week ending May 8
• AGI of $30,000 to $40,000: Week ending May 15
• AGI of $40,000 to $50,000: Week ending May 22
• AGI of $50,000 to $60,000: Week ending May 29
• AGI of $60,000 to $70,000: Week ending June 5
• AGI of $70,000 to $80,000: Week ending June 12
• AGI of $80,000 to $90,000: Week ending June 19
• AGI of $90,000 to $100,000: Week ending June 26
• AGI of $100,000 to $110,000: Week ending July 3
• AGI of $110,000 to $120,000: Week ending July 10
• AGI of $120,000 to $130,000: Week ending July 17
• AGI of $130,000 to $140,000: Week ending July 24
• AGI of $140,000 to $150,000: Week ending July 31
• AGI of $150,000 to $160,000: Week ending August 7
• AGI of $160,000 to $170,000: Week ending August 14
• AGI of $170,000 to $180,000: Week ending August 21
• AGI of $180,000 to $190,000: Week ending August 28
• AGI of $190,000 to $198,000: Week ending September 4
• All other checks: Week ending September 11

So let’s say you did not have a 2018 filing requirement, and you file your 2019 return with an AGI of $65,000 and owe tax; your check would be issued the week ending June 12. But let’s say you file your return on June 13th; in that case, your check would be issued at the end (the week of September 11th).

We believe that if you are “missed” by the IRS you can use the IRS’s Get My Payment tool after your return is filed to convert your check to a direct deposit.

A key point is that these are the dates of mailing, not the date your check is generated. So you need to subtract two weeks for the date the check is generated. You also need to subtract four weeks for the date a return gets into the IRS computer system. So for a check to be issued the week of June 12th, a return needs to be in the system six weeks earlier, or by the week of May 1st. Now, I am making assumptions based on my knowledge of how the IRS works but I believe them to be accurate.

What this means is that now is the time to file tax returns if you want your stimulus payment. The IRS saying the sooner the better is correct.