The IRS Can’t Figure Out Where to Apply an Electronic Payment…Where the IRS Was Told Where to Apply It

My client received a letter from the IRS dated November 22, 2021:

Taxpayer identification number: [redacted]
Tax Period(s): Dec. 31, 2018
Form: 1040

We received a payment of $2,002.00 on Oct. 08, 2020.

We don’t have enough information to apply this payment correctly.

Attach a clear copy of both sides of the canceled check or checks.

If the $2,002.00 you paid is for a bill you received, send a copy of the bill so we can identify the tax period. An incorrect identification could result in a bill for the period you intended to pay….

My client did indeed make this payment on October 8, 2020.  The $2,002 was for an amended 2018 return so the IRS has (already) applied it to the correct tax year.  This payment was made using IRS Direct Pay.  When you use IRS Direct Pay you must specify the tax year, the reason for the payment, and the tax form.  My client correctly noted the tax year (2018), the reason (Amended Return), and the tax form (1040X) when he paid, so the letter is nonsensical.  So why did the IRS send it when they had this information?

The real reason is that my client’s amended return (which was mailed to the IRS on October 8, 2020 and was received one week later) is sitting in a bin in the Austin Service Center waiting to be reviewed.  Yes, the IRS is more than one year behind in processing paper-filed amended returns (I recently had a client who filed eighteen months ago have his amended return processed).  I spoke to the Practitioner Priority Service yesterday (PPS) seeing if I could resolve this over the phone.  The PPS representative told me that the client’s amended return does not even show up in the IRS computer system. This is typical (unfortunately) for paper-filed amended returns.  I was told (a) don’t send another copy of the amended return, (b) respond to the letter (but without sending another copy of the amended return), and (c) you may be asked to resend the amended return if the IRS can’t find it.

Why didn’t we electronically file this amended return? You cannot electronically file pre-2019 federal amended returns; they must be paper-filed.  My client did pay electronically, and he did mail the amended return using certified mail so we are certain the return was received.

This is another IRS issue caused by the IRS’s response to the pandemic.  Yes, the IRS was not at fault for the pandemic, but the ongoing response (did you know that IRS employees are still not completely back at IRS Service Centers?) is a cause of this issue (and many others).  This is costing taxpayers time and money.  It’s also costing the IRS time and money (which means taxpayers) because (a) someone must read the response I sent and (b) my client can–and will be able to–get some penalties and interest abated once this amended return is processed (given that the IRS is at fault for the slow processing time).  This episode also makes the IRS look stupid.  My client told the IRS exactly where the payment should be applied…and the IRS still couldn’t figure it out.


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