Taxable Talk

I criticize the IRS regarding paperwork often.  Indeed, the IRS has a major problem dealing with correspondence. Yet many businesses must make numerous payments by check (because that’s the only way to do so) or EFTPS.  This morning, I sent a client a link to IRS Direct Pay (to make an estimated payment) and I was surprised to see a screen telling me I can make business tax payments by IRS Direct Pay.

Now, you cannot use Direct Pay for all payments, but it does allow for many:

• Form 720 (federal excise tax)
• Form 940 (annual unemployment tax)
• Form 941 (employer’s federal tax)
• Form 943 (employer annual tax for AG employees)
• Form 945 (annual withheld federal income tax)
• Form 990PF (return of private foundation)
• Form 990T (exempt organization business income tax)
• Form 1042 (withholding tax for income of foreign persons)
• Form 1065 (US partnership return of income)
• Form 1120 (corporation income tax return)
• Civil Penalty

The system allows for balance due, estimated tax, and extension payments.

Kudos to the IRS for adding another method for businesses to meet their tax obligations.

Yesterday, I had to call the IRS to obtain an address to mail a return to (it had to go to a special address), and discuss collection activities for another client. Unfortunately, the IRS computer system crashed.  (It came back up late in the day.)  This morning, I went to run some transcripts and, again, the system was down.

The main IRS computer system dates to 1959. That is not a typographical error.  It is 65 years old–eligible for Social Security.  It uses Fortran (a computer language that is no longer popular).  I think you can see that an update is needed (something the IRS readily acknowledges).  (I was in the last Computer Science 1 class at Berkeley to use Fortran with punch cards.  Berkeley switched to Pascal the following quarter.)

But the IRS is dependent on Congress for budgeting, and a stable IRS budget is absolutely needed. The IRS is an agency where politics should not apply, but over the last fifteen years we’ve seen Adminstrations use the IRS for political goals (such as the Lois Lerner/conservative nonprofits scandal, targeting of reporters who were investigating the Administration, etc.). The Party that has been out of power had one method to act and express displeasure–cutting the IRS’s budget–and they did.

I don’t have an answer here, but if you wonder why the IRS has issues and why things take far longer to resolve with the IRS than they should, you have one of the reasons.  At times (especially when the IRS computer is down), I assume the whole thing is held together by duct tape (it can fix everything, right?).  We’ll see if by the time I start taking Social Security if the IRS has a modern (or even semi-modern) main computer system.

The story you’re about to read is true. The names (and dollar amounts) have been changed to protect the innocent.

John and Mary Smith, long-time clients, filed an amended return for the 2017 tax year years ago. It took some time, but their claim for an approximate $750,000 refund was approved.  Finally, in early 2023 a check was issued for $701,818.85 (the Smiths owed some back tax that the IRS correctly offset, and the IRS added interest per law).

Unfortunately, the check was returned to the IRS; the Smiths had moved and the IRS didn’t update the address. In June 2023 the IRS sent a new check for $632,825.18 (there was some additional tax to offset and the interest changed).  That check, too, never arrived; the Smiths completed Form 3911 noting they didn’t receive the check.  The IRS followed up a couple of months ago, and the Bureau of the Fiscal Service sent the Smiths a form to complete. It turns out that a business called Acme Auto Inc appears to have cashed the check; indeed, the copy of the check sent by the Fiscal Service shows it was made payable to Acme.  Acme appears to be a real business, and the address on the check matches its address as registered with the state’s corporation commission/Secretary of State.

I can only think of three things that could cause this. First, Acme was also due a tax refund for the exact same $632,825.18, and the Fiscal Service erred and sent a copy of the wrong check.  The chance of that seems about the same as it snowing today in Las Vegas.

Second, somewhere in the printing/generation of the refund the payees names (and address) got changed to Acme, and Acme deposited the check. Perhaps they were expecting a refund, or perhaps they just look at this as found money. There’s an obvious issue here: depositing money that you’re not due means that you get to pay it back with interest.

Third, the check was made payable to the Smiths and Acme (or its owner(s)) changed the payee to Acme. That’s theft, and quite illegal.

I cannot think of any other explanations for what happened.  In any case, the Smiths have sent the form back to the Bureau of the Fiscal Service, and I’m certain that an investigation will determine the cause for this. Eventually (likely in early 2025), the Smiths should receive another check for about $650,000 (they will be due additional interest). As for Acme Auto, I hope that I’m wrong about what happened and the check copy we saw was simply the wrong one. Or that Acme still has that $632,825.18 around as they’ll need to pay it back. If not, they’re likely to receive a visit from law enforcement.

In mid-June I received mail from the IRS.  That’s not unusual; I receive a lot of mail from the IRS (generally, correspondence for clients).  But this was different: it was a check for $1.87.  Here’s the check:

Now, I wasn’t expecting a refund (I owed tax, which I paid with the filing). It’s definitely labeled as a tax refund, but no explanation accompanied the check.  That’s not unusual; the checks and the notice of explanations are generally sent from different offices.  I ran a transcript, and there’s nothing noted on my account for 2023 that gives an explanation (no entry for $1.87).  So I waited, figuring that I would receive a notice in the mail within a few weeks.

It’s now August 1st, and I still haven’t received anything.  I could call the IRS up and they may see something that I don’t in my account.  But it’s $1.87, and it’s just not worth my time figuring this out.  Yes, there’s a possibility this refund is erroneous (indeed, I suspect that’s the case) but it’s just $1.87!  Yes, we tell clients to not cash refund checks they’re not expecting–indeed, if this was $187 (rather than $1.87) I would be on the phone to the IRS to figure out what’s going on.  Yes, if this refund is erroneous I may have to pay it back with interest (so that might be $1.97 in three years).

The IRS is supposed to send a notice and perhaps I’ll get one before year-end.  I’m not holding my breath.

This is more humorous than anything else (because it’s $1.87), but it’s typical of the kind of issues we see.  I’m currently having to appeal an erroneous late filing penalty for a client who filed his tax return on December 15th (his tax deadline) because the mailing receipt from Australia shows the date as “15/12.”  (In most of the world–but not the United States–the day appears before the month.)  In my letter asking for the appeal, I really wanted to say, “Does anyone consider there aren’t fifteen months anywhere in the world?”  I didn’t–I kept the letter directly on point including the citation to § 7502(a)(1) of the Internal Revenue Code (which governs timely filings).

These are two examples of the IRS’s major issues with correspondence. Unfortunately, I haven’t seen any improvements this year (only regression).