With much of the state of Florida declared a federal disaster area, the IRS this morning announced that all residents of Florida have until May 1, 2025 to file their tax returns that are on extension. This impacts not only 2023 tax returns on extension, but the 2024 filing deadline next April. Do note that interest and the late payment penalty continue for 2023 tax returns (because payments were due on April 15, 2024). This extension also means that estimated payments due in January don’t need to be made until May 1, 2025 for Floridians.
Archive for the ‘IRS’ Category
Hurricane Milton Relief: Florida Now Has Until May 1, 2025 to File
Friday, October 11th, 2024Disaster Relief Extension Impacts Millions in Illinois; Expect IRS to Give Relief to North Carolina Shortly
Tuesday, October 1st, 2024The IRS announced this morning that tax deadlines have been postponed in several counties in Illinois due to recent severe weather in the Chicagoland area:
The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties in Illinois.
Chicago is in Cook County, and Will county is just south of Chicago; thus, this extension impacts millions. Individuals impacted have until February 3, 2025 to file returns; this extension is automatic.
As of today, I haven’t seen a formal announcement yet about extensions due to Hurricane Helene. However, given the destruction in western North Carolina, and that areas of North Carolina and Florida have been declared a major federal disaster area, I expect the announcement by the IRS in the next day or two, with a similar postponement until at least February.
Don’t Touch the Duct Tape!
Thursday, September 19th, 2024Yesterday, 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.
Creative Math, IRS Style
Wednesday, September 4th, 2024One of our clients made a mistake on his payroll tax deposits: He shorted the IRS $4,590. He realized his mistake, and immediately made a correcting payroll tax deposit (albeit late). There’s a penalty for this, and it’s 10% (based on the number of days his payment was late)–which he paid in advance of an IRS assessment of a penalty.
The IRS assessed a $5,327.46 penalty. That’s a penalty of 116%, quite a bit more than 10%. The IRS sent a penalty notice in late June; my client immediately sent via certified mail a letter questioning the penalty. What did the IRS do? Did they put a hold on collection activities while they investigated? Did they perform the investigation, realize that an error was made, and send a $0 amount due notice? Or did they send an Intent to Levy (CP504B) notice?
The IRS ignored my client’s response and sent the CP504B Intent to Levy notice.
This morning, I called the IRS and tried to get this resolved on the phone. The representative couldn’t–without seeing how the penalty was calculated (which he couldn’t see), he could only note we disputed it and were going to file an Appeal. This afternoon, I submitted that Appeal request online [1].
In the end, my client’s issue should be resolved without him owing additional tax or penalties; the IRS clearly erred. However, my client has to pay me for services that shouldn’t have been needed simply because no one at the IRS did anything with his correspondence. Frankly, the IRS today rarely reads their mail timely or correctly. And that’s a huge issue.
[1] The IRS recently implemented an online upload feature. This allows responding to some notices by upload. I was able to upload all the documents needed for the Appeal (including the Form 9423 Collection Appeals Form) quickly and get an immediate confirmation they were received. This is excellent, and the IRS is to be praised for this. It shouldn’t have been necessary to file this Appeal if the IRS could read mailed correspondence, but at least there are some improvements happening at the IRS.
The Case of the Missing $632,825.18
Thursday, August 22nd, 2024The 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.
Why Did the IRS Send Me a $1.87 Refund?
Thursday, August 1st, 2024In 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).
Is IRS Correspondence Broken?
Thursday, May 30th, 2024As a tax professional with quite a few clients, our clients receive IRS notices. Much of this correspondence (not all, but a large portion) has to be responded to. My three most recent cases are making me think there are major issues with the IRS handling mail.
Client #1 received an Automated Underreporting Unit (AUR) notice alleging four items: two 1099-NECs not reported, one 1099-MISC, and some capital gains. We timely responded in December pointing out with backup documentation where all the alleged unreported income was on the tax return (it was all there). Earlier this month we received a notice reducing the alleged unreported items to three (one of the 1099-NECs was removed from the list). We just sent basically the same response with the same documentation to the AUR group (and hope it won’t take four back-and-forths to go through a four-item list).
Client #2 received a notice alleging a “Math Error” on his return. You have exactly 60 days to respond. We did so–and this is required to be mailed using certified mail, return receipt requested (which we did). The IRS alleged we didn’t timely respond. I sent back documentation proving we timely responded. It’s been several months, and we’re still waiting on a response.
Client #3 received a notice alleging his return was untimely filed. His return was required to be mailed; he was outside the United States and sent it with tracking from New Zealand (timely). It wasn’t received timely (but that’s the fault of the Postal Service, not my client) and doesn’t impact him; there’s a rule in tax called the Postmark Rule which governs this situation. My client has now received a letter from IRS Collections even though we disputed the entire issue months ago.
It’s not just me. If you’re a tax professional, prepare to be very depressed when you read this Twitter/X thread from a CPA in Indiana named Mike Sylvester. An excerpt:
…[The Taxpayer Advocate agent’s] case load has tripled since 2019.
She said the cases she sees now the IRS is wrong almost every time. She said The IRS correspondence system is beyond broken. Her words, not mine.
She said the IRS broke during Covid and still has not recovered.
Then the part that just floored me. Understand the long time policy of The Taxpayer Advocate is only contact them as a last resort. Try to work the problem with the IRS hard yourself first.
I told her another problem I am having and how many times the IRS and I have gone back and forth. She told me I was wasting my time and I should have opened a Taxpayer Advocate case several months ago.
She said I need to open cases faster…
I am still shocked by this.…[emphasis in original]
There is plenty more, and reading through the comments made me depressed. One comment is that there are fewer than 12 individuals working at the IRS Philadelphia Service Center to handle correspondence! My experience with the Taxpayer Advocate Service (TAS)–when they get to your case–has been excellent. However, it’s clear they are buried.
Major work is needed with correspondence, and tax professionals and taxpayers are suffering. TAS is supposed to be a last resort; it should not be a necessity most of the time. Yet it may become so (if that has not already occurred).
The “Joy” of 1959 Technology
Monday, May 13th, 2024Clients of ours (call them John & Betty) just received their IRS refund. It was off by $1,250, exactly the amount of an estimated tax payment they made. They made that payment using IRS Direct Pay (and I saw their transaction receipt), so it wasn’t a question–as it often is–of whether or not the clients made that estimated payment. Why didn’t the IRS see that estimated payment?
Betty made that estimated payment in early January, noting it was for the 2023 tax year. She used her social security number, so she did everything correctly. However, she didn’t reckon with the IRS’s antiquated technology: The main IRS computer system dates to 1959.
You read that correctly. The main IRS computer system is likely older than most of the readers of this blog.
On John & Betty’s tax return, John’s name is listed first (along with his social security number). Betty made that estimated tax payment using her name and her social security number. “But my name is right on the tax return; why can’t the IRS match that payment with the return?” There is no good answer to that question, but the correct answer is because the main IRS computer system dates to 1959 and cannot handle this.
There was another issue with their refund: they received no explanation of why their refund was short $1,250. I explained to them that the refund is issued from one IRS office while the explanatory notice comes from a different IRS office; the notice can come four weeks before to four weeks after the refund.
“How do we get that refund?” Betty asked. The only way is to call the IRS, explain the situation, and the IRS agent can verify that the estimated payment is sitting in Betty’s account and move it. It will then process, with a second refund being issued (by check) with interest. John asked, “We’ll really be paid interest on that?” I told them they will–interest works both ways–but that interest is taxable.
I told them to prevent this in the future they should use John’s social security number for making estimated payments. They’ll do that this year. But this exposes another issue: What should taxpayers do who sometimes file jointly ans sometimes file separately do? There’s no good answer today for them (nor is there for taxpayers having marital issues); my current advice is to make estimated payments under each name/social security number but realize a phone call to the IRS will likely be needed after the return is filed and processed. The long-term solution is for the IRS to have better technology. That’s coming, but whether it will come soon is quite another question.
An Identity Protection Unit Saga: Part 6
Monday, April 22nd, 2024When last we left the saga of my client and his tax year 2020 refund, we were waiting for a call from the Taxpayer Advocate Office. Well, we received the callback and my client’s refund check was issued last Friday. Post Office willing, it should reach him in Arkansas sometime this week.
As for the Taxpayer Advocate, once I spoke with them they were (as I’ve found in the past) extremely helpful in getting this resolved. Indeed, I don’t think this could have been resolved without their assistance. It turns out that my client’s return needed two special processes run in order to be processed and the refund issued. That took about three months (once the Taxpayer Advocate Office was involved). Unfortunately, all of us (as taxpayers) are paying for this: my client is receiving nearly $5,000 of interest on his refund.
Let’s examine how this could have been prevented:
1. The IRS could have had better instructions on verifying your identity. When my client verified his identity with ID.me, he thought he had completed the process; after all, he had verified his identity. My client was not alone in this; the IRS later changed the instructions about verifying your identity to note that you still need to verify your identity with the IRS.
2. Follow-up Letters from the Identity Protection Unit. The IRS should send out a second letter six months after the first letter to those who have not yet verified their identity. My client likely would have called or messaged me about this, and I would have let him know that he did have to go through the verification process with the IRS.
3. More IRS employees trained and working at the Identity Protection Unit. Calling the IRS’s Identity Protection Unit is a saga in itself; too many times you will get the message, “We’re sorry, but due to extremely high call volume in the topic you’ve chosen we cannot take your call at this time. Goodbye.”
4. Better training of Identity Protection Unit employees. As noted in Part 3, many of these employees seem to regard tax professionals with POAs as non-persons.
5. The IRS should send letters from the Identity Protection Unit to IRS Power of Attorney (and Tax Information Authorization) representatives–especially for those who reside outside the United States. Mail in the US is generally reliable; mail outside the United States can be hit and miss (or miss and miss). A client of mine living in Central America recently received an Identity Protection Unit letter; it only took seven months to get to her. As a reminder to the IRS, the taxpayer in this situation has authorized his or her tax professional to be notified (and, in the case of a Power of Attorney, to act on behalf of the taxpayer). The IRS’s refusal to copy tax professionals on Identity Protection Unit letters is a major cause of problems.
6. Better IRS computer systems. This is not something that the IRS can really control, but hopefully the computer improvements that are coming will assist in this area (it certainly can’t hurt).
7. Acknowledgments and more realistic time-frames from the Taxpayer Advocate Office. The representative I dealt with is buried; he told me that the four months it took for him to get to my client’s case was “typical.” The intake individuals at the Advocate need to be aware of this and communicate this to people who are obtaining the Advocate’s services.
Finally, let’s consider Joe and Mary Doe. As I wrote in part 4,
They desperately need their $20,000 tax refund…and they’re stuck in limbo. If they did exactly what Mr. Smith did, they would have done everything correctly…and be stuck in limbo. If you wonder why there’s frustration with the IRS, and why members of Congress have IRS liaisons, look no further.
I wish I could tell you with certainty that things with the Identity Protection Unit will improve in the future. I think they will, but some of these issues appear systemic; it will take top-down changes at the IRS to cause improvements in this area. We can always hope.
Previous posts on this:
An Identity Protection Unit Saga: Part 1
An Identity Protection Unit Saga: Part 2
An Identity Protection Unit Saga: Part 3
An Identity Protection Unit Saga: Part 4
An Identity Protection Unit Saga: Part 5
Bozo Tax Tip #4: The $0.68 Solution
Tuesday, April 9th, 2024With Tax Day fast approaching it’s time to examine yet another Bozo method of courting disaster. And it doesn’t, on the surface, seem to be a Bozo method. After all, this organization has the motto, Neither rain nor snow nor gloom of night can stay these messengers about their duty.
Well, that’s not really the Postal Service’s motto. It’s just the inscription on the General Post Office in New York (at 8th Avenue and 33rd Street).
So assume you have a lengthy, difficult return. You’ve paid a professional good money to get it done. You go to the Post Office, put proper postage on it, dump it in the slot (on or before April 15th), and you’ve just committed a Bozo act.
If you use the Postal Service to mail your tax returns, spend the extra money for certified mail. For $4.40 you can purchase certified mail. Yes, you will have to stand in a line (or you can use the automated machines in many post offices), but you now have a receipt that verifies that you have mailed your return.
About fourteen years ago one of my clients saved $2.42 (I think that was the cost of a certified mail piece then) and sent his return in with a $0.37 stamp. It never made it. He ended up paying nearly $1,000 in penalties and interest…but he did save $2.42.
Don’t be a Bozo. E-File (and you don’t have to worry at all about the Post Office), or spend the $4.40! And you can go all out and spend $3.65 and get a return receipt, too (though you can now track certified mail online). For another $2.32 you can get the postal service to e-mail the confirmation that the IRS got the return (for the OCD in the crowd). There’s a reason every client letter notes, “using certified mail, return receipt requested.”
