IRS Update 01-25-2021
The IRS shut down at the end of March due to the pandemic and “re-opened” in August. (This is the second time since the beginning of 2019 that the IRS has “shut down”). When it opened back up, there were an estimated 30-40 million unopened pieces of mail waiting for them and an additional one million pieces arriving every week. This unopened mail included paper returns, amended returns, checks, correspondence, abatement requests, etc… At least 1 million returns are still unopened & unprocessed. As of the last accounting 90% of the IRS workforce is still working remotely. With the crush of tax season looming, we expect it to take years for the IRS to catch back up to where they were before the pandemic. (And they were way behind schedule then.)
Among other things, here are some of the IRS issues are clients are facing:
- Tax payments not cashed – We have several clients who paid their taxes over six months ago. They are still waiting for the IRS to process the check. Of course, they are receiving payment demand notices from the IRS. This puts clients in the position of either resending a new check and stopping payment on the old one or simply waiting for the old one to process. If they simply wait for the IRS, the IRS may take collection actions. If you issue another check, you risk the IRS cashing both payments and then waiting a few months for a refund. If you “stop payment” on the old check, the IRS’s computer will likely assess a dishonored payment penalty (which is not insignificant) and they will be forced to attempt to have that fee abated.
- Regular paper filed returns not processed or posted – If you opted to “paper file” your tax return, the IRS processing time seems to be between six to twelve months. Prior to the pandemic, processing time was three to six months. Ten years ago, the processing time was about six weeks. This time lag can be a real problem if you are attempting to work with the IRS on balances from other years.
- Amended returns not processed or posted – Previously, amended returns took about three to four months to process. Now they too are taking six to twelve months to process. This is a real problem when the amended return has been filed in response to an IRS letter. IRS will continue down the collections path until the amended return has “processed”.
- Client correspondence to the IRS – These were normally addressed by the IRS in 60 – 90 days. It is now taking six to twelve months – assuming the IRS does not “lose” the letter in processing.
- Installment Agreements – Previously, an installment agreement would take approximately thirty to forty-five days to process and the client began making payments. This has now stretched out over a three to six month time lag.
- Power of Attorney forms – A five to ten day processing window was the previous norm. Now we are looking at twenty-five days if they are processed at all. In addition to using the POA to help clients with IRS issues, we often need a POA on file to determine what amount of stimulus you received or other relevant information. A month long POA processing time-line might mean your tax return cannot be filed without an extension. Even if a POA has not processed, we can still utilize it to call the IRS and fax it to an agent to get some information we need. But IRS hold times during tax season can run north of two hours.
- Late arriving IRS notices – As of Jan 21, 2021, we’re receiving notices dated November 23rd . When we get a notice that late, it is likely the IRS has already sent a second notice. Nightmare!
- Responses to audits or tax notices – These are taking waaay longer than normal in every way possible: From receiving the audit notice; to the IRS showing information we submit as being received; to getting a response from the auditor; to heaven forbid actually closing the audit.
- Delayed refunds – Returns that are not processed mean refunds are not sent out.
- Inappropriate/Incorrect letters & tax notices – Many recent IRS letters erroneously claim a tax payment was late or not paid. With that “garbage in” the “garbage out” is the erroneous assessment of penalties & interest. If you receive a penalty notice and you believe it incorrect, we advise you wait to receive a second notice. This provides the IRS’s computer time to correct itself before you expend the time and effort to “fix” it.
- Delayed stimulus payments – Some stimulus checks were mailed, some debit cards were mailed, some were direct deposited, some are going to have to be claimed as a tax rebate on the 2020 tax return.