Posts Tagged ‘2020.Tax.Season’

When It Takes the IRS 5+ Months to Process an Amended Return…

Wednesday, November 18th, 2020

Back in May, clients of mine discovered they left something out of their 2018 tax return. We prepared an amended return, the clients included a check for the additional tax, and it was mailed off to Kansas City. The check was cashed in July, so the amended return was received.

Fast forward to today. The amended return still has not been processed (and no one knows when it will be; it’s almost certainly sitting in a bin with thousands of other amended returns), but the IRS Automated Underreporting Unit discovered the error and sent the clients a notice. They found the same error. So now my clients have to respond to this notice, telling the IRS there’s an amended return somewhere in Kansas City.

Normally, when a taxpayer submits an amended return for a year the IRS computer system notes the return exists so that no AUR notices are sent until the IRS processes the return. Because of Covid the IRS is behind. Way, way behind. At last report the IRS still has 8+ million pieces of mail to go through. So what my clients are going through is going to be repeated by many others, just adding to the IRS’s backlog.

Unfortunately, I don’t see a solution to these issues. Covid isn’t going away until likely next summer (based on the vaccine news, I expect most Americans to be vaccinated by then), meaning the IRS issues we face today will continue for months. (Even when the IRS fully reopens we’re looking at months to clear the backlog.) And it’s not just amended returns. I have a payment issue for a client (the IRS misapplied a payment) where I sent a response in September 2019; that response has still not been assigned to anyone. An Appeals request sent in February has just been assigned to somebody, but the helpful staff at the Practitioner Priority Service (and they did help me this morning) have no idea when the case will actually be worked. We all do need to be patient, but many taxpayers aren’t which is adding to the issues.

IRS Mailing Erroneous CP259F Notices

Wednesday, November 4th, 2020

We prepare a few split-interest charitable trust returns (IRS Form 5227) every year. Coincidentally, I serve as trustee of a split-interest trust. Imagine my surprise when I received a CP259F Notice from the IRS for the trust that I am trustee of stating, “You didn’t file a Form 5227.” The only problem is that I did file it (mailing it certified mail, return receipt requested) and it shows as delivered on March 4th. (Form 5227 cannot be electronically filed.) Meanwhile, multiple clients received the same letter; all filed their returns on or about the same date (and have proof of filing).

I called the IRS this morning and confirmed that these returns are most likely sitting in a trailer in Ogden, Utah waiting to be processed. Because of Covid, the Ogden, Utah mailroom did not reopen until mid-June. It could be tomorrow or three months from tomorrow before the Form 5227s are processed. The IRS asked that we ignore these notices and not send a second return because a second return (a) could be processed before the first return (causing another set of issues, including erroneous late filing penalties), and (b) sooner or later the backlog will be cleared (the returns will be considered filed on the date received, not the date the IRS eventually processes the returns). The IRS representative I spoke with stated these notices should not have gone out.

I do want to point out that this issue shows why using certified mail is essential when sending anything to a tax agency. While I’m hopeful that the trust return is sitting in the trailer and will eventually be filed, it’s inevitable that something is going to get lost. (There were over 23 million pieces of mail waiting to be processed at one point; the backlog is still more than 5 million.) Should the IRS lose the Form 5227, I have proof of filing that should hold up and prevent the imposition of late filing penalties.

This also is definitely the year to have patience with the IRS.

It’s Time to Panic

Wednesday, September 30th, 2020

As I write this, it’s September 30th. Two weeks from tomorrow is Thursday, October 15, 2020. That’s the deadline for individual taxpayers on extension to file their tax returns (except for those in disaster areas such as the fires that impacted California, Oregon, and Washington). If you have yet to send your paperwork to your tax professional it’s past the time to do so. Yes, it’s time to panic!

If your return is simple and straightforward, stop procrastinating and get it done and filed. If your return has any sort of complexities, you must start working on it now. Your tax professional needs time to get it done correctly. You need to turn in that paperwork post haste. If you’ve procrastinated, stop, sit down, and get it done–NOW.

It may already be too late for your return to be timely filed with many tax professionals. For example, our official deadline was September 15th. Luckily, we’re only a day or two behind so our procrastinating clients are still in relatively good shape. However, that might not be the case with all tax professionals. And I can guarantee if you drop off your paperwork with us on October 13th your return is almost certainly not going to be timely filed.

If you file late, it’s as if you never filed your extension. So sit down and get everything done now! Of course, if you like paying a 25% penalty, simply procrastinate for another three weeks.

The Dead Need Not Amend (Even When They Have To)

Friday, September 25th, 2020

When I eventually go to the pearly gates, I assume I’ll be leaving income tax behind. It would be a rather rude surprise to find I have lifetime employment in the great beyond, too.

This past week I needed to amend a 2019 federal return. A couple left off one item from their return. It had no impact on their tax, but the return did need to be amended. The IRS is now allowing amended 2019 federal returns to be electronically filed, so after obtaining the signature document I efiled the return. That’s a lot more efficient than mailing the return to the IRS.

But the return was rejected, because the spouse was deceased. That was true, and was noted on the originally filed return. The original return was electronically filed, so I couldn’t see why the amended return couldn’t be. Silly me, I missed yet another exception to the ability to electronically file amended returns. You cannot electronically file an amended return if a spouse is deceased. This wasn’t listed in any of the IRS notices announcing electronic filing of amended returns.

Unfortunately, that exception is real and is an IRS issue. My software company confirmed it’s an IRS programming issue and at least for now any amended return with a deceased taxpayer needs to be mailed to the IRS. Still, at least most 2019 amended returns can be electronically filed.

The Perils of Waiting to the Last Minute

Thursday, September 17th, 2020

The extended deadline for partnership and S-Corporation tax returns was this past Tuesday, and all of our returns were completed and filed that could be (but one). And that one client understood the issues with late filing–but more on that in a moment.

However, we were lucky in that we don’t use software from Wolters Kluwer. Users of that software (such as CCH) could not efile returns on September 15th. That’s an issue when it’s a deadline date. Many years ago, we were impacted when ProSeries (the software we use, made by Intuit) suffered a similar failure on the regular individual deadline date. That year, the IRS extended the deadline by a day. It’s quite possible the IRS will offer such relief to users of CCH this year.

Not only can technology issues happen on a deadline day, but if you wait to the absolute last minute you don’t have time to effectively review the return. This impacted one of our clients. She thought the income number from the partnership should be half of what we’re showing. The numbers on the tax returns exactly match the financial statements, so she needs to review the financials to find the errors. (I did not discover any errors, but she is intimately familiar with the business and errors should stand out more to her.) When you wait to the last day, the clock does strike midnight. She elected to file her return late (possibly using First Time Abatement to avoid penalties) as she wants her return to be correct.

We’re less than two weeks away from the extended deadline for trusts and estates and less than a month away from the extended deadline for individuals. Now is a very good time to send those last documents to your tax professional (indeed, our deadline to guarantee returns are timely prepared was earlier this week). It’s not yet time to panic (except for trusts and estates), but it soon will be for individuals. If you haven’t gotten everything together, you really need to start now. The penalties for late filing are severe, and if you don’t file by October 15th (unless you reside in one of the federal disaster zones) are severe (25% late filing penalty). It’s not a day late and a dollar short; it’s a day late and lots of dollars short.

IRS Extends Tax Deadlines for Victims of Iowa Derecho & California Wildfires

Tuesday, August 25th, 2020

The IRS announced yesterday that they have extended tax deadlines for victims of both the derecho that hit Iowa and the ongoing California wildfires. The specific counties impacted can be found on the Federal Emergency Management Agency (FEMA) website.

For both disasters, tax deadlines are extended that began on August 10th for the derecho and August 14th for the wildfires until December 15th. This impacts 2019 personal tax returns on extension, business returns on extension, payroll tax filings, and estimated tax payments. California’s Franchise Tax Board automatically extends deadlines for federal disasters, so those impacted have identical extensions for California taxes. I assume the Iowa Department of Revenue will similarly extend Iowa deadlines.

Unfortunately, it looks like we’ll also be looking at victims of Hurricane Laura in Texas and/or Louisiana later this week. The IRS recently posted information on safeguarding records for natural disasters; your insurance company likely has additional information available. The cliche is that an ounce of prevention beats a pound of cure–but it is good advice.

That Direct Deposit from “IRS TREAS 310” Is Legitimate

Wednesday, August 19th, 2020

Taxpayers who filed after April 15th are being paid interest on their refunds. The IRS issued a press release earlier this week, stating:

This week the Treasury Department and the Internal Revenue Service will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.

The interest payments, averaging about $18, will be made to individual taxpayers who filed a 2019 return by this year’s July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.

In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.

Everyone else will receive a check. A notation on the check − saying “INT Amount” − will identify it as a refund interest payment and indicate the interest amount.

Several clients asked this morning about mysterious direct deposits from “IRS TREAS 310,” wondering what these were. That’s the interest on your refund from April 15th until the date you filed.

Do note that the interest you receive is taxable. You will receive a Form 1099-INT in the mail from the IRS next January and you will need to include that on your 2020 tax returns.

No, Please No

Wednesday, June 24th, 2020

A brief story in today’s Wall Street Journal (Pay$ Link) states that Secretary of the Treasury Mnuchin may consider extending the July 15th tax deadline (which was, of course, originally April 15th) again. Quoting the Journal,

Asked in an interview at a virtual Bloomberg event if he was considering another delay to Sept. 15, Mr. Mnuchin said it is possible.

“As of now we’re not intending on doing that, but it is something we may consider,” he said.

My reaction is what I titled this article: No, please No. I and every other tax professional would like this Tax Season to end.

The article also notes that another stimulus program is now being considered, but Republicans would want it to be very targeted. Given that Democrats want everything under the sun, it will be quite interesting to see what (if anything) comes out of Congress this Summer.

Not Only Incoming Mail is Backlogged at the IRS

Thursday, June 11th, 2020

This morning, our IRS Stakeholder Liaison held a conference call on the current IRS situation. One unfortunate piece of information that was noted is that not only does the IRS have a backlog of incoming mail (estimated at well over 10 million pieces), there is a very large backlog of outgoing mail. As of early this week, the IRS has a backlog of 23.5 million notices.

With the IRS gradually reopening, this is a backlog that’s going to take months to resolve. The IRS has the capability of mailing 1.5 million notices per week. That means there’s nearly a four month backlog. This week, I received an IRS notice for a client for the first time in months, so the IRS is starting on this. Per today’s call, the IRS is concentrating on notices that are time sensitive (such as Notices of Deficiency).

There are also going to be issues with the notices. These notices are computer generated, so the deadlines in the notices will be wrong. The IRS is including a flyer explaining this along with the new deadlines, but how many taxpayers actually read an insert?

The 23.5 million notices does not include notices that will be generated based on returns as they are processed, and the backlog of correspondence that must be processed. I’m telling clients that have responded to IRS notices to think that it will likely be several months before they hear anything.

Unfortunately, there’s nothing the IRS can do at this point but to start on the process and let practitioners know of the issues. This is a year to be patient with the IRS.

IRS Reopening More Offices in June

Friday, June 5th, 2020

On June 1st the IRS opened offices in Kentucky, Texas, and Utah. That’s important for those of us in the tax professional community as two of the major IRS Service Centers for processing returns are in those states (Austin and Ogden). Austin also includes the unit that processes ITIN applications (a news report said there’s a backlog 250,000 applications). Ogden has one of the three CAF units (the unit that processes power of attorney and tax information authorization forms); that was backlogged even before the shutdown.

The IRS is opening more offices later this month:

  • Georgia and Tennessee: June 15th
  • Missouri and Michigan: June 15th
  • Indiana and Ohio: June 29th
  • California, Oregon, and Puerto Rico: June 29th

This includes the Atlanta and Memphis Service Centers on June 15th and the Fresno Service Center on June 29th. Atlanta and Memphis are not used for processing returns but are used for numerous other IRS operations including correspondence audits, offers in compromise, and automated underreporting unit notices. Fresno is a major processing center for returns.

This is good news for everyone (taxpayers, tax professionals, and IRS employees). Unfortunately, it is going to take many months for the paper backlog to be resolved.