Posts Tagged ‘2021.Tax.Season’

If You Haven’t Filed Your 2019 and/or 2020 Tax Returns, You Have One Month to Do So and Avoid Late Filing Penalties

Wednesday, August 24th, 2022

Earlier today, the IRS announced extremely broad penalty relief for 2019 and 2020 late-filed tax returns.  Here’s the beginning of the IRS’s press release:

To help struggling taxpayers affected by the COVID-19 pandemic, the Internal Revenue Service today issued Notice 2022-36, which provides penalty relief to most people and businesses who file certain 2019 or 2020 returns late.

The IRS is also taking an additional step to help those who paid these penalties already. Nearly 1.6 million taxpayers will automatically receive more than $1.2 billion in refunds or credits. Many of these payments will be completed by the end of September.

Besides providing relief to both individuals and businesses impacted by the pandemic, this step is designed to allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season.

“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” said IRS Commissioner Chuck Rettig. “The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”

The relief applies to the failure to file penalty. The penalty is typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted today on

The returns impacted by this include:

  • Form 1040 (Individual Income Tax Returns)
  • Form 1041 (Trust/Estate Tax Returns)
  • Form 1120 (C-Corporation Tax Returns)
  • Form 1120-S (S-Corporation Tax Returns)
  • Form 1065 (Partnership Tax Returns)
  • Some foreign information returns, such as Forms 5471 and 3520

Let’s say you haven’t filed your 2020 tax return.  You’re being given a golden opportunity to avoid a 25% penalty.  You will still owe the late payment penalty (0.5% of the tax due per month late) and interest, but these pale in comparison to the late filing penalty.  If I were an impacted taxpayer, I would immediately contact a tax professional to get the return filed!  Most tax professionals are extremely busy (especially with the extension deadlines approaching), but things will only be worse in two weeks.

If you did file one of these returns and late and were assessed a penalty, you should receive your refund by the end of September.

Frozen Returns: If You Made an Extension Payment on May 17th And Haven’t Received Your Refund….

Tuesday, January 11th, 2022

Yesterday, a client of mine called asking about her 2020 tax refund.  I assumed she was one of the unlucky individuals whose return fell out of IRS processing and is stuck waiting to be reviewed.  However, she told me that her return didn’t even show in the IRS’s “Where’s My Refund.”   I confirmed that–and that didn’t make any sense; her return was filed on September 30th and accepted that day.

I called the IRS and discovered another reason some haven’t received their refunds.  If you made an extension payment on exactly May 17, 2021 (the last day to file a 2020 extension) and are receiving a refund, your return may have been “frozen” by the IRS computer system.  (I had my second such case today.)  I don’t know how extensive this issue is, but the representative I spoke to yesterday told me that he had dealt with “many” such cases.

Hopefully, someone at the IRS is going through frozen returns to manually unfreeze the returns without taxpayers having to call the IRS.  But if you made an extension payment on May 17, 2021 and have filed your return and have not received your refund, check IRS’s “Where’s My Refund.”  If no status at all is shown (the return does not show as still being processed), you or your representative needs to call the IRS and have the return “unfrozen.”

Prepare to Panic!

Wednesday, September 29th, 2021

As I write this, it’s September 29th. Two weeks from Friday is October 15, 2021. That’s the deadline for individual taxpayers on extension to file their tax returns (except for those in disaster areas such as the hurricane that impacted New Jersey, New York, Pennsylvania, Louisiana, and Mississippi). 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. We’re not horribly behind, but I can state that if one of our clients procrastinates beyond this weekend there could be issues.  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, continue procrastinating.  After all, tax professionals are far less busy after October 15th.

It’s Deja Vu All Over Again: IRS *Again* Mailing Erroneous CP259F Notices

Monday, September 20th, 2021

One would think that the IRS would learn from its mistakes.  One would be wrong (at least, in this case).  Back in November 2020 I wrote a post titled, “IRS Mailing Erroneous CP259F Notices.”  That post dealt with taxpayers who filed split-interest trust returns (Form 5227) timely and received notices stating they had not filed those returns.  And as Yogi Berra would say, it’s deja vu all over again.

Yes, the IRS sent those same notices out this year.  Yes, the returns have been filed and are sitting in bins somewhere in Ogden, Utah waiting to be processed.  Yes, you should not respond to those notices and send a second copy of your Form 5227 to the IRS.  (Normally, you should always respond to IRS notices but this is an exception.)  As the IRS said last year, (a) if you send a second return it could be processed before the first return (causing another set of issues), and (b) sooner or later the backlog will be cleared.  (Note: If you didn’t file your Form 5227, you should, of course, respond to this notice.)

As I said last year, this faux pas is another reason why using certified mail is essential when sending anything to a tax agency.  With the volume of paper waiting to be processed, it’s inevitable that something is going to be lost.  (Not to mention the report that the IRS “helpfully” destroyed 30 million documents in March 2021.)  If you have your certified mail receipt that will hold up as proof of filing.

I am going to add some parting remarks to the IRS.  As I just told a client, “This is incredibly stupid.  The IRS was made aware of this issue last year and obviously did nothing.  This will cause even more phone calls to the IRS (you currently have a 3% chance of reaching a human if you call the IRS), and more mail sitting in trailers.  The IRS should have turned off the automatic generating of these notices.”


Can the IRS be Honest About the Delays in Processing?

Thursday, September 2nd, 2021

The IRS maintains a webpage showing operational status during the pandemic.  Additionally, the IRS periodically sends out “Hot Issue” summaries.  One of the items asked in the “Hot Issue” questions was on amended returns:

1040X not processed

Issue:  When will 1040X be processed?

Response: As a result of the backlog in the number of amended returns in inventory created by Coronavirus closures, the processing time has been extended to 20 weeks. We are sorry for any inconvenience.

That’s equivalent to about five months.  Unfortunately, that’s very optimistic.  I have seen an amended return processed that fast this year (back in March), but the return involved no change in dollar amounts (just changing the capital loss carryforward for a year).  The last three amended returns I prepared for clients took nine months, 15 months, and 12 months to be processed.

Now, I am not blaming the IRS here for the delays.  As long as most government employees aren’t working in their offices, these delays will continue.  However, I do blame the IRS for misstating what taxpayers should expect from the IRS.  Bluntly, taxpayers should expect that it will take on average one year from the date they file their amended return for it to be processed.  I’m not going to quote five months when that simply isn’t happening.

At Least I’m Not Classified as “Dead”

Friday, July 16th, 2021

I’ve been talking over the past months about the issues faced by taxpayers in dealing with the IRS.  Suffice to say, when you have a 3% chance of reaching a human things aren’t going well.  But we should always look at the good side of things: I’m still breathing (in reality and in view of the IRS).

One woman in New Jersey is classified as “deceased” according to this report in the New York Post.  It’s going on seven years of bureaucratic futility in rising like a Phoenix to life.  Of course, she is really breathing and this is something that should just have gotten fixed immediately.  And yes, she still must pay taxes even though she’s “deceased.”

Indeed, I was able to give a client good news this week.  He was erroneously assessed a late filing penalty on a foreign trust return (the return was timely filed with an extension, and we had proof of both the timely filing and the extension).  Late filed foreign trust returns (Form 3520) are assessed a $10,000 penalty.  When the client was assessed the penalty he wrote the IRS with proof.  When the IRS ignored him, he asked me to write the IRS.  I did so, but the IRS refused to reverse the ruling.  We appealed, and after eighteen months of waiting we received a letter reversing the penalty.  (We never had an Appeals hearing–it appears that the Appeals screener realized that my client did have an extension.)

The overall theme when dealing with the IRS remains the same: patience.  You need it when dealing with the IRS.  I do expect things to slowly improve once the IRS moves employees back to the Service Centers (probably this Fall), but given the humongous backlog it will takes years for the IRS to be back to normal.

Is the IRS Telling Tax Professionals the Truth?

Wednesday, July 7th, 2021

Yesterday, a fellow tax professional posted on Twitter:

Ogden currently has 70 tractor trailers of unopened mail. – per IRS agent trying to explain why a POA from 2019 still hasn’t cleared yet.

Yet if you read the IRS Operations page on the current status of IRS operations you get a different picture:

[On Individual Tax Returns] The IRS is opening mail within normal timeframes and all returns received prior to 2021 have been processed if the return had no errors or did not require further review. As of June 25, 2021, we had 16.7 million unprocessed individual returns in the pipeline…

Status of Processing Form 941, Employer’s Quarterly Federal Tax Return: The IRS is now opening mail within normal timeframes. The IRS has also made significant progress in processing Forms 941. As of July 2, 2021, we had about 5,000 Forms 941 received prior to 2021 in the processing pipeline. Including current year returns, as of July 2, 2021, we had 1.6 million unprocessed 941s in the pipeline.

An individual tractor trailer has a volume of 3,489 cubic feet; 70 of these would have a volume of 244,230 cubic feet.  You could fit 1,826,967 gallons of fluid in 70 tractor trailers.  That’s a lot of mail.  Sure, Ogden does now receive all paper-filed individual returns for the western United States, but what the IRS is saying doesn’t make sense if the IRS is telling us the truth.

Ogden is where almost all specialty returns are filed (Forms 3520, 3520-A, 8804/8805/8813, etc.), and those are not mentioned in the IRS pronouncement.  Yes, that will add to the unprocessed paper (these returns must all be paper-filed), but in volume it’s not large.  Paper-filed business returns (corporations, S-Corporations, and partnerships) also mainly go to Ogden; however, most such returns are electronically filed so in volume this is likely not a big factor.

My suspicion is that a large amount of the 70 trailers are filled with returns waiting to be sent to federal warehouses.  Because of Covid, most federal employees are working from home.  Paper-filed returns are generally stored for years in federal warehouses.  The IRS cannot send those returns from Ogden to various warehouses because the warehouses are closed.  Thus, they fill tractor trailers waiting for them to reopen.  These do not represent unprocessed paperwork; they are filled with processed paperwork that must be stored.  My guess is that the telephone representative the tax professional spoke with saw the trailers, knew that some are filled with unprocessed mail, and assumed the rest were too.  I’m reaching out to my IRS Stakeholder Liaison on this issue.

Still, if you’re dealing with the IRS patience is a necessity.  We’re telling clients the following timelines (these are averages) when dealing with the IRS:

  • Refunds Where You Claim the Recovery Rebate Payment (as a tax credit): 4 months
  • Processing Time for Paper-Filed Return: 10 months
  • Processing Time for Paper-Filed Amended Return: 12 months
  • Processing Time for Electronically Filed Amended Return: 11 months
  • Response Time on Correspondence to AUR Group (CP2000s, etc.): 6 months
  • Response Time on Other Correspondence to the IRS: 12 months

Those timelines are, bluntly, ridiculous.  But that’s what’s going on today.  Though I expect the IRS to return to full staffing at Service Centers this Fall, it will likely take the IRS years to get out from under the backlog.


Wednesday, June 30th, 2021

This morning, The National Taxpayer Advocate issued her semi-annual report to Congress.  In the report is the true state of tax returns at the IRS.  Fair warning, it’s not a pretty picture.

As of the close of the filing season (late May), there were 35.3 million tax returns that were unprocessed.  This includes:

  • 1.1 million paper returns received in 2020 (100,000 for individuals and 1 million for businesses);
  • 15.7 million paper returns received in 2021 (6 million for individuals, 4.6 million for businesses, and 5.1 million “unspecified”);
  • 10.3 million returns awaiting “Error Resolution” (9.8 million for individuals, 500,000 for businesses);
  • 1.4 million returns that are “Processing Rejects” (1.2 million for individuals, 200,000 for businesses);
  • 2 million returns that are “Unpostable” (1.1 million for individuals, 900,000 for businesses); and
  • 2.1 million ID Theft returns (all individuals).

And if you called the IRS general phone line for individuals, you had a 3% chance of getting through!  (This is actually better than the Taxpayer Advocate’s initial estimate of 2%, not that there’s a significant difference here).  Tax professionals have special phone numbers to call.  I found that I had about a 5% chance of getting through–or a 95% chance of not getting through.  And I pity those who had to go through Identity Verification.  The IRS increased the number of returns subject to this while phone staffing on these lines decreased.  The Taxpayer Advocate called it a “Historically low level of IRS telephone service.” I won’t argue.

While I expect things to improve, it’s likely going to take years for the IRS to work through the backlog.  I currently quote to my clients the following timelines:

  • Processing time for a paper return: 10 months
  • Processing time for an amended return: 12 months
  • Processing time for your refund if you do not get it in the first month after e-filing: 5 months

The above numbers are averages.  I had a client (who I helped come into compliance) file back returns last year.  One return took 16 months to be processed.   That return was incorrectly processed by the IRS, so a letter must be sent (so the client is likely looking at another few months before it’s correctly processed).

The IRS is doing better on correspondence (the average response time is 6 months), but it’s nothing to write home about.  An issue not mentioned in the report is the IRS issuing Notices of Deficiency prior to reading correspondence addressing underlying issues (thus, the notices should not have been issued).  I know that the Taxpayer Advocate is working on this systemic issue, but a resolution is, unfortunately, unlikely in the near future.

I do expect the IRS Service Centers to be restaffed this Fall, and this will then start to help on reducing the backlog.  Unfortunately, a backlog that was built over 18 months will take at least that long to be undone.


“I Haven’t Received My IRS Refund. Can You Help Me?”

Friday, June 18th, 2021

This past week I fielded a number of phone calls asking this question.  Unfortunately, the answer is no.  Neither I nor any other tax professional can speed up your IRS refund.

First, the good news: about 90% of IRS refunds are moving through the system normally (with the refund being issued between 10 and 21 days after filing).  However, the remaining 10% of returns with refunds are facing long delays; I estimate that these refunds will be delayed on average between three and five months.  Why?

There are two issues causing the delays.  First, the IRS is manually checking all refunds where an individual is claiming a refund for not receiving the Recovery Rebate Payment(s) (Form 1040, Line 30).  Due to staffing issues at IRS Service Centers, this takes quite some time.

The other issue is “errors” when processing.  This doesn’t mean there’s an error on your return.  Rather, as part of normal processing a few returns “fall out of processing.”  In most years, the “errors” are fixed within one to four days, and the delay is hardly noticed.  But 2021 isn’t a normal year.  Because of Covid, IRS Service Centers are not fully staffed.  Returns that fall out of processing go in a giant (virtual) stack to await a human to review the error, fix it, and have the return complete being processed.  Instead of taking days, we’re talking months.

Your tax professional cannot fix this.  There is no one to call to have this resolved.  Indeed, the IRS asks that you do not call them as there really is nothing that can be done.  Please don’t call your tax professional either; he or she cannot make your refund come to you any faster this year.  You must just be patient.

The only good news is that we expect to see many IRS employees return to Service Centers in the coming weeks.  That should eventually help to resolve the problem.  Until then, you should just periodically check the IRS’s “Where’s My Refund” website.  And do realize that you will receive interest from the IRS on your delayed refund (though that interest is taxable).

The 2021 Tax Season (Part 1)

Monday, June 14th, 2021

I’ve had good Tax Seasons and bad Tax Seasons, but the first part of the 2021 Tax Season was unique.  And uniqueness doesn’t mean good nor does it mean bad.  Both points were present this year, and continue to be present.  Let’s look at the highlights and lowlights of the first part of the 2021 Tax Season.  (I state “first part” because we still have 50% of our clients’ returns to file–we always have a lot of clients on extension.)

The IRS’s Does Great!  Let’s heap some praise on the IRS.  The IRS generally did an excellent job in implementing the laws that Congress passed dealing with Covid relief.  These laws required many changes to the antiquated computers that the IRS uses to process tax returns and given the IRS’s systemic issues (low staffing, ancient computer systems, etc.) they did an excellent job.

The IRS Made Some Confounding Decisions.  Let’s take tomorrow’s tax deadline (June 15th) for residents of Texas, Louisiana, and Oklahoma as an example.  Residents of those states can timely file returns tomorrow, and timely file extensions tomorrow.  (Individuals residing outside the United States can also so file.)  But if a resident of Texas wants to file an extension, that extension must be mailed to the IRS.  Ask any tax professional about correspondence sent to the IRS and the theme song from the musical Annie comes to mind (tomorrow, tomorrow, it’s always a day away).  Yet the IRS wants to increase the mail backlog.  This makes no sense.

Speaking to the IRS Is Near Impossible.  The Taxpayer Advocate reported that 2% of individuals attempting to reach the IRS actually do so.  And when you do, you’re likely on hold for a long time.  I have eight matters that require that I speak with the Practitioner Priority Service (PPS).  I have either Power of Attorney forms or Tax Information Authorizations for each client.  Some of these I could handle using the IRS’s e-services system if the IRS would timely process the forms.  It’s currently taking the IRS three months to process forms.  So I (along with other tax professionals) must call the IRS up.

I’m currently on hold for the business side of PPS, with a hold time of more than one hour noted.  Now, I can work while I’m on hold but most individuals cannot–they can’t take phone calls, they must sit at home, etc.  Meanwhile, I’ve tried to reach the individual side of PPS four times a day for the last week and cannot get through.  If I cannot get through over this week I will have to mail letters on some of these matters, delaying resolutions for months–it’s taking the IRS on average ten months to read the mail.  (While Commissioner Rettig states the IRS is timely opening their mail, they are not timely reading their mail.)

I have a client who had to mail his 2019 tax return to the IRS (the return has a form that is not allowed by the IRS to be efiled).  It was mailed in late September (he was on extension, waiting for a K-1). The return was just processed.  But my client was selected for Identity Protection Verification–that requires my client to call the IRS.  He’s tried three times a day for the last week and cannot get through.  Now, my client’s refund is about $40, so it’s not a big deal but the IRS’s inability to handle phone calls right now is a disaster that retards effective tax administration.

This Was an Early Year.  Tax seasons are sometimes late (everyone wants extensions) or early (everyone wants to file yesterday).  This was an early year–many clients wanted their stimulus money and, thus, wanted to file early.  Unfortunately, there are so many hours in the day (my cloning machine still needs work) and…

Tax Paperwork Comes Later and Later Every Year.  This year was no exception.  Most of my clients who are in partnerships saw their K-1s come one week later than last year.  That doesn’t sound like much, but a day here, a day there, and then you’re talking about many days.  (My apologies to Senator Dirksen.)  Adding to this was…

Congress Changing the Tax Law in the Middle of Tax Season Delays Tax Filings.  Many clients received unemployment.  When Congress changed 2020 tax law in March 2021, that means that tax professionals had to wait for (1) the IRS to update their computers and make any rules about the new laws and (2) the tax software to be updated.  While the IRS and the software companies generally did a good job, this added to delays.

Most of Our Clients Understood This.  We appreciate your patience this year.  For those who did not understand, please note that we did inform you of our deadlines when we sent our Engagement Letters (and all returns whose paperwork was received prior to the deadline were filed).

There Are Black Clouds on the Horizon for Tax Administration.  Congress and the IRS keep putting more and more work on tax professionals, and this is going to add to the cost of tax filings.  Consider the new Schedule K-2s and K-3s.  These are going to be forms used to report international transactions on partnerships and S-Corporations.  Lots more work.  Congress tends to pass laws mandating things like phone interviews for the Child Tax Credit.  This doesn’t sound like much, but take three minutes here and three minutes there–well, I’ve used my Dirksen quote already but you get the idea.

However, that’s nothing compared to the Pro Publica leak.  For those who haven’t heard, Pro Publica, a liberal special interest group, was provided tax documents showing how much various millionaires and billionaires paid in taxes.  (I will have a lot more on this later this week.)  Tax documents are never supposed to be released.  Indeed, felonies have been committed.

Democrats want to increase reporting to the IRS (as a way to pay for increases in taxes.)  Does anyone think that Republicans in Congress will go along with this given that the IRS can’t safeguard what they currently have?  When the previous tax scandal occurred (the Lois Lerner/targeting GOP-leaning non-profits), Republicans cut the IRS’s budget (it was the only thing they could do to show their displeasure).  Unless the felon is found in the next few weeks, expect the GOP to do the same thing as it’s their only means of showing displeasure.

Many Tax Professionals Are Unhappy.  Jason Dinesen, an Enrolled Agent in Iowa, penned a piece titled “The Tax Field is Broken.”  I don’t completely agree with the article, but much of what he writes is true.  Tax professionals do have lives outside of their businesses, and many have not had a break in over a year.  I have seen many posts about tax professionals retiring.  That said,…

I’m Still Standing.  Our business is doing fine (indeed, if you’re a tax professional and are interested in joining our firm, let us know), and I have no plans on retiring.  This was, though, the first year I was generally miserable for more than a month.

Expect Tax Preparation to Impact Inflation.  Everything I see shows that the supply of tax professionals is decreasing, the amount of work necessary to prepare a return is increasing, and the demand is increasing.  The Law of Supply and Demand says that if supply decreases and demand is constant, prices go up.  Here, we have a decrease in supply and an increase in demand and the amount of time needed to prepare the average return increasing.  Prices are going to increase, possibly significantly.

That’s my rundown on the May deadline.  We’ll see what the second half of the Tax Season brings us.