Taxable Talk

In yesterday’s mail we received several IRS CP59 Notices for clients. What’s a CP59 Notice? Well, here’s the first two lines:

You didn’t file a Form 1040 tax return.

You haven’t filed your tax return for the tax year ending on December 31, 2019.

Of course, all the clients had filed their 2019 tax returns in October. However, these clients had to paper-file for various reasons and the IRS simply has not yet processed those returns. Based on a phone call with the IRS, it appears that the IRS is still processing paper returns from July! Yikes! Based on that timeline these returns may not be processed until May.

These notices were issued because these clients had income that showed they needed to file a tax return (1099s, etc.) and none had been noted. The notices, dated February 15, 2021, are automatically sent four months after the extension deadline.

The CP59 notice includes a Form 15103 that you’re supposed to complete and return along with a copy of your tax return. The helpful individual I spoke with at the Practitioner Priority Service noted that taxpayers who paper-filed after July and who receive the CP59 notice should simply ignore the notice and should not file Form 15103 and send another copy of their tax return.

The IRS is simply backlogged with paper, and while IRS Commissioner Rettig has stated the IRS is caught up, that’s simply not the case. The handy IRS Operations Status Page says that the IRS is opening mail within normal timeframes. Unfortunately, that same page states:

The IRS has also made significant progress in processing returns. As of January 29, 2021, we had 6.7 million individual tax returns in the processing pipeline…

How long you may have to wait:  It depends on where you sent your tax return and where it is in the process. We are processing returns we received over the summer due to the extended July 15 tax filing due date and, in some cases, are processing tax returns dated as early as July 15, 2020. However, we are rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available, and we are taking other actions to minimize any delays. Tax returns are opened in the order received. As the return is processed, it may be delayed because it has a mistake, is missing information, or there is suspected identity theft or fraud. If we can fix it without contacting you, we will. If we need more information or need you to verify that it was you who sent the tax return, we will write you a letter. The resolution of these issues depends on how quickly and accurately you respond, and the IRS staff trained and working under social distancing requirements to complete the processing of your return.

What you should do: Other than responding to any requests for information promptly, there’s no action you can take. We’re working hard to get through the backlog. Please don’t file a second tax return or contact the IRS about the status of your return. [emphasis added]

There’s no blame to the IRS–this is the reality of dealing with Covid. Unfortunately, with 2020 returns about to start flowing into the IRS I don’t see improvement coming on return processing anytime soon. What can you do? Basically, efile if at all possible. Electronically filed returns, for the most part, are processed smoothly. But if you have to paper-file for any reason, just expect your return to take time to be processed. I’d estimate nine months for a paper-filed return to be processed. (The IRS will be backdating the filing date to the postmark date.)

And if you do have to paper-file a return, make sure you use certified mail. It’s inevitable that some returns are going to get lost. If you have your certified mail receipt, your return should be treated as if it was filed on the date you mailed it to the IRS. This year, it’s absolutely worth the additional $5.

Today is February 4, 2021. But the IRS computer has some other ideas about the date.

The IRS sent many CP21C notices telling individuals that their Economic Impact (Stimulus) payments were offset to your 2007 tax account. Yikes! From the National Taxpayer Advocate:

The IRS’s more than 109,000 CP21C letters informed the recipient, “We applied a credit to your 2007 [that is not a typographical error!] tax account due to new legislation. We used (offset) all or part of your economic stimulus payment to pay your federal tax as the law allows … As a result, you don’t owe us any money, nor are you due a refund.” Unsurprisingly, the letter directs the taxpayer to a general phone number to resolve this issue. Equally unsurprisingly, taxpayers will face more frustration because the official level of service so far in 2021 is 14 percent on the Accounts Management telephone lines, down from 61 percent for the same period last year, and employees have answered only nine percent of taxpayer calls. The CP21C letter may very well drive the more than 109,000 recipients to the phone lines on the cusp of filing season when taxpayers may already be struggling with filing and RRC questions. The letter and taxpayers’ phone experience may both escalate taxpayer frustration.

The only quibble I have with this is “The letter and taxpayers’ phone experience may both escalate taxpayer frustration.” Calling the IRS today is an exercise in futility for the most part. When I do get through–and I did three times yesterday!–I find the IRS telephone agents very professional and willing to assist me. But the 14% number mentioned above seems about right for the general lines (it’s probably 25% for the tax professional numbers–better, but not great), and that’s a huge issue.

Getting back to the notice, these notices were basically completely erroneous. What the IRS meant to write was:

Because we don’t show a filed 2019 tax return nor a 2018 return, we cannot issue you the Economic Impact (Stimulus) payment. You can still get the payment by taking a tax credit on your 2020 tax return.

The IRS did note this on their website but how many of these taxpayers will look on this website and get down to the bottom of the General Information questions and click on the link to read the information? My guess is less than 1% of the 109,000 who received the erroneous notice. Indeed, this should be at the top of the webpage so that those impacted by this will see it.

In any case, just another “fun” fact for the 2021 Tax Season.

I need to speak with the IRS regarding four clients. Unfortunately, I need to speak with three different departments within the IRS for these clients. I’ve been attempting to reach the IRS for over a week first thing in the morning (7am PST), late in the day (2-3pm PST), and in the middle of the day (sometime between 10am and 12n PST). In almost all cases I’ve heard this message:

We’re sorry, but due to extremely high call volumes in the topic you’ve chosen we cannot take your call at this time. Please try your call again later.

I did manage to get a human this afternoon. Exactly 3 minutes into my call he vanished, I heard a click, and the call ended. He did not call me back.

For two of my clients, I may be forced to write letters even though the issues are (theoretically) easily resolvable by a phone call. Instead, they’ll likely go in the 5+ million pieces of mail sitting in a trailer and the clients will have to wait (probably a year) for a response, and might have to send another letter.

And I’m calling numbers that are designed for tax professionals with theoretically less hold time. It’s basically impossible to get through on the regular numbers. I tried calling the international IRS contact number and received a busy signal; that’s the first time that’s ever happened to me. For individuals needing tax assistance regarding information from the IRS, the lyrics from Man of La Mancha’s “Impossible Dream” come to mind: “To dream the impossible dream….”

I realize the IRS (along with all of us) are dealing with Covid-related issues. However, this performance is simply unacceptable. I have clients who may be subject to levies who have filed appeals (thus, they are not supposed to be subject to levies) and I cannot speak to anyone at the IRS to have collection activities stopped on their accounts. The IRS can verify this easily during a phone call. But I can’t reach a human.

I am extremely frustrated by this. And there’s no end in sight to this horrible customer service. There’s plenty for the IRS’s new “Chief Taxpayer Experience Officer,” Ken Corbin, to deal with.

I have been asked by several clients when they can efile their 2020 tax returns. In most years, tax filing begins in late January. But not this year:

The Internal Revenue Service announced that the nation’s tax season will start on Friday, Feb. 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns.

The Feb. 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the Dec. 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.

The IRS is delaying the start of tax filing because of changes to the Tax Code made with the December 27, 2020 tax law changes.

Today happens to be the date that IRS “Free File” begins. However, returns prepared using Free File will not be transmitted to the IRS until February 12th.

As of today, the deadline for filing individual tax returns remains Thursday, April 15th.

UPDATE: A friend reminds me that just because tax returns cannot be filed until February 12th does not mean you should wait on (a) sending return information to your tax professionals and (b) starting work on your 2020 tax returns. Do not wait!!! This is not going to be a fun Tax Season for tax professionals. Get your return paperwork to your tax professionals ASAP. Most tax professionals encourage you to send your tax documents (i.e. 1099s, W-2s, etc.) as you receive them–so do so!

One of our clients received a CP14 Notice alleging she owed the late payment penalty (“Failure to Pay under Internal Revenue Code Section 6651). The notice noted he had an unpaid balance of $583 as of July 15, 2020 on 2019 tax of $8,855. The late payment penalty is assessed on the unpaid balance as of the tax filing deadline. If you have paid 90% of the tax due by the tax filing deadline, there is no late payment penalty.

If you do the math you will see that my client paid $8,272 of the $8,855 she owed, or 93.4%. That’s more than 90%, so the late payment penalty should not have been charged. I spoke with an individual at the Practitioner Priority Service (PPS), and this is the second such case he’s seen. However, it’s not happening with all such individuals as another client with a similar balance due did not receive a CP14 notice.

As we tell all of our clients, do not assume a notice from the IRS is correct. Indeed, the last study on IRS notices shows that about two-thirds of IRS notices are wrong in part or in whole. If you have any doubts, ask your tax professional.

In this case, the helpful individual at PPS reversed the penalty, so my client doesn’t need to pay anything. Still, it would be better if the IRS didn’t issue erroneous notices but given everything that happened during 2020 some hiccups are to be expected.