Posts Tagged ‘2021.Tax.Season’

IRS Reminds Taxpayers of April FBAR Deadline. So What!

Friday, April 9th, 2021

The IRS sent out a press release this morning noting the FBAR deadline remains April 15th.  The FBAR is the Report of Foreign Bank and Financial Accounts (FinCEN Form 114), and must be filed if you have $10,000 aggregate in one or more foreign financial accounts at any time during the year.  My reaction is “Who cares.” And this is a deadline you can ignore (for now).

The penalties for willfully not filing the FBAR are very significant.  They start at $100,000 or half the balance in each account, whichever is greater.  I absolutely am not encouraging individuals to get in trouble with the FBAR.

But the IRS press release left out a significant issue vis-a-vis the April 15th deadline for the FBAR: There is an automatic extension until October 15th.  There are no penalties and no issues at all with filing the FBAR between April 16th and October 15th.  Indeed, the FinCEN automatic extension is how I (and most tax professionals) would like to see IRS deadlines work: automatic extensions for filing (but you have to pay the tax, if any, on the due date).  But I digress.

So if you have an FBAR filing requirement and you are not ready to file, relax.  You have six more months to get the FBAR filed—a fact the IRS left out of its press release.

25 Million (and Counting)

Thursday, April 1st, 2021

Today is April Fool’s Day.  I wish this post were a joke–and I guess in one way it is.  Unfortunately, what I’m reporting is true.

Yesterday, National Taxpayer Advocate Erin Collins told a webinar that 25 million tax returns need a human to process.  Some returns must be filed on paper (for example, split-interest trust returns, Form 5227), other returns fall out of processing due to errors in processing, and some taxpayers choose to file paper returns.  The IRS Covid operations page says there are 9.2 million returns as of March 15th needing to be processed–some received as far back as July 2020.  Most likely, Ms. Collins’s remarks mean another 16 million returns fell out of processing and are awaiting a human to push them through the system.

What does this mean?  If you have to paper-file something with the IRS, or if you file an amended return with the IRS (all amended returns are reviewed by a human), you should expect it to take many months–maybe a year–to be processed.  If you file your return electronically, there’s about a 90% chance it will be processed just fine.  However, if your return is one of the 10% or so that falls out of processing, your return could sit in a virtual stack for months.  What’s worse is there is nothing you can do about this. 

The reality is that until IRS operations fully resume at their Service Centers (I expect that to happen late this summer), the backlogs will only grow.  Commissioner Rettig’s remarks that (paraphrasing) things are fine are disingenuous at best and outright lies at worst.  The IRS remains broken, and we’re all suffering as a result.


Commissioner Rettig, Come Clean and Stop the B.S.

Thursday, March 18th, 2021

Last week I wrote a post titled 18 Months and CountingAs promised, here’s the follow-up and it can be summed up with a simple line, “The IRS is lying to everyone about correspondence.”

Commissioner Rettig today said he is “hopeful to get through the backlog by summer,” and that there’s a 24 million return backlog of business and individuals per TIGTA.  And he said that the IRS always has a backlog.  But I and other tax professionals are seeing paper-filed returns take one year to be processed (and I’ve seen reports of longer).  That’s not normal.

I am not stating that Commissioner Rettig is lying in his testimony.  Indeed, I strongly suspect everything he said is the truth…but not the whole truth.  He sidestepped the question about the backlog stating there’s always inventory of returns.  No Congressmen followed up on that issue, but had they asked the question, “Is it normal to have a one year backlog for returns?” then we might have gotten more answers.  Additionally, no one asked about the delay in correspondence.

I didn’t see anything in the testimony (and I will admit I did not watch all of it) regarding the backlog in correspondence.  It’s ridiculous and is causing anyone who is corresponding with the IRS plenty of pain.

Today, the National Taxpayer Advocate asked for a multi-year budget for the IRS and guaranteed funding.  The IRS is the only (or one of the only) government agencies where more money spent generally leads to more revenue for the government.  Her point is well-taken: It is impossible to plan long-term when the budget falls off a cliff annually.  That’s on Congress to fix and is not up to Commissioner Rettig.

For Commissioner Rettig, though, here are three simple questions that I’d like answers to:

  1. What is the delay in correspondence?  You said in January you’re actually opening mail timely.  How timely is the IRS in reading mail?  And what’s a realistic time-frame to get this delay down to three months?
  2. You stated that an “inventory” of returns is normal.  Is it normal for paper-filed returns to take a year to be processed?  Given that we’re in the midst of another Tax Season, and given many returns cannot be e-filed (either due to complexities within the returns or limitations within the IRS), what’s a realistic time-frame for the IRS to catch up?  (Hint: Summer is not realistic.)
  3. The IRS has issued a series of erroneous notices.  The most recent involved CP59 notices.  Is the IRS doing any forward planning regarding automated notices, turning these off so that this issue doesn’t recur?

(My guess on the answers:  It will take 1-2 years for the correspondence backlog to get reduced to the point the IRS routinely responds within three months…and that’s 1-2 years once the IRS fully reopens the IRS campuses.  Likewise, I suspect it will take at least another year before the IRS backlog in tax returns is down to something manageable.  And I highly doubt the IRS has done any forward planning on notices.)

You likely can think of other good questions for Commissioner Rettig.  I’d love to see our Congressmen and Senators ask these questions, and get some realistic answers.  It would be enlightening to all.

UPDATE: My thanks to the commentator who pointed out that I had originally typed, “…many returns cannot be paper-filed….”  You can tell it’s been a long Tax Season (already).

IRS Reportedly Extending Federal Individual Due Date from April 15th to May 17th

Wednesday, March 17th, 2021

Multiple news reports  state that the IRS will extend the April 15th tax deadline to May 15th.  Because May 15th falls on a Saturday, that effectively pushes the deadline to Monday, May 17th.  I would expect this would be for all April 15 deadlines (primarily Forms 1040, 1041, and 1120) but we will have to wait for the formal announcement.

IRS Commissioner Chuck Rettig is testifying on Capital Hill tomorrow, and I would expect him to make the announcement as part of his testimony.  I will have more on this when it is officially announced.


It’s official — individual tax returns have been extended; the IRS’s official announcement is here.  However, the first quarter estimated payments have not been extended.  This is dumb because many taxpayers have their estimated payments made by their tax professionals when they file their returns.  Consider John Smith.  Mr. Smith legally files his tax return on May 1st and is now late with his 1st Quarter 2021 Estimated Payment!  Sorry, IRS, the first quarter estimated payment should be extended until May 15th, too.

And there’s more that have not been extended.  Corporate tax returns (Form 1120) due on April 15th are still due on April 15th.  Trust and estate returns (Form 1041) due on April 15th are also still due on April 15th.  Not extending all the deadlines is going to cause confusion–especially for those who file trust and estate returns.

There’s a cliche about half a loaf of bread being better than none.  I’d say the IRS gave taxpayers not even half a loaf of bread; rather, just a couple of slices of bread.

Stimulus for a 10-Year Old? Another (Likely) Erroneous IRS Notice

Saturday, March 6th, 2021

One of my clients just received IRS Notice 1444-B noting they received their Second Economic Impact Payment of $600 by direct deposit.  (The notice was dated February 19th, but they received it just this past week.)  They wondered why it was $600 when it should be $2,200 (married filing jointly with two dependent children).  They checked their bank accounts, and nothing was direct deposited; they checked the IRS’s online “Where’s My Payment” tool and it didn’t show a payment as having been sent.  So they called me.

I looked at the notice and saw it was addressed to their ten-year old daughter!  No, she didn’t file her own tax return and she definitely shouldn’t be receiving a stimulus payment of any amount.  So it appears the IRS has sent out some more erroneous notices related to the stimulus.

My suspicion is that the payment was never sent–just the erroneous notice.  Of course, now I’ll have to obtain an account transcript for the daughter just to check.  (She doesn’t have a bank account, so who knows where the payment went if it was actually issued.)  Just more unnecessary work in a tax year that is basically being defined by unnecessary work for tax professionals.


When Acquire Doesn’t Mean Acquire

Thursday, March 4th, 2021

It’s time for today’s lessen in double-speak, or bureaucratese, courtesy of the IRS.  On the top of Form 1040, just below your address is a question:

At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

It seems simple: If you bought any cryptocurrency, sold any, exchanged any, sent some, or received any, check the box marked “Yes.”  Except that’s wrong, per the IRS.  On March 2nd, the IRS updated their Frequently Asked Questions (FAQ) on cryptocurrency.  If all you did was acquire (purchase) cryptocurrency, you can answer no:

Q5. The 2020 Form 1040 asks whether at any time during 2020, I received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.  During 2020, I purchased virtual currency with real currency and had no other virtual currency transactions during the year. Must I answer yes to the Form 1040 question? (3/2/21)

A5. No.  If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question. [emphasis added]

As the National Taxpayer Advocate pointed out, the IRS wants information on individuals who had reportable sales of cryptocurrency.  That would be sales, exchanges, and spending; it would also include individuals who received cryptocurrency for free (but not gifts).  The IRS wants to make sure individuals who have taxable events with cryptocurrency have reported them on their tax returns.

Is it a problem if you answered “yes” but all you did was acquire cryptocurrency?  Definitely not.  The question is poorly written, and you answered truthfully based on the question.  However, you might end up receiving an IRS notice if the IRS computer looks for taxable cryptocurrency activity on your return and doesn’t see any.  The solution, which likely will be adopted for 2021 returns, is to change the question to read, “At any time during [the tax year], did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency in a reportable transaction?

I give the IRS an “A” for knowing that many individuals are not reporting cryptocurrency activity on their tax returns, and a “D-” for writing questions.

IRS Extends Some Filing Deadlines for Victims of Texas Winter Storms

Monday, February 22nd, 2021

The IRS announced today that they have extended the deadline for victims of Texas winter storms until June 15th. This impacts the March 15th partnership and S-Corporation filing deadline and the April 15th individual, C-Corporation, and Trust/Estate deadline for those in a FEMA-declared disaster area. (A quick look says that this is almost the entire state of Texas.)

The IRS said they will work with individuals outside the official disaster zone who have been impacted:

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

More Erroneous IRS Notices

Wednesday, February 10th, 2021

In yesterday’s mail we received several IRS CP59 Notices for clients. What’s a CP59 Notice? Well, here’s the first two lines:

You didn’t file a Form 1040 tax return.

You haven’t filed your tax return for the tax year ending on December 31, 2019.

Of course, all the clients had filed their 2019 tax returns in October. However, these clients had to paper-file for various reasons and the IRS simply has not yet processed those returns. Based on a phone call with the IRS, it appears that the IRS is still processing paper returns from July! Yikes! Based on that timeline these returns may not be processed until May.

These notices were issued because these clients had income that showed they needed to file a tax return (1099s, etc.) and none had been noted. The notices, dated February 15, 2021, are automatically sent four months after the extension deadline.

The CP59 notice includes a Form 15103 that you’re supposed to complete and return along with a copy of your tax return. The helpful individual I spoke with at the Practitioner Priority Service noted that taxpayers who paper-filed after July and who receive the CP59 notice should simply ignore the notice and should not file Form 15103 and send another copy of their tax return.

The IRS is simply backlogged with paper, and while IRS Commissioner Rettig has stated the IRS is caught up, that’s simply not the case. The handy IRS Operations Status Page says that the IRS is opening mail within normal timeframes. Unfortunately, that same page states:

The IRS has also made significant progress in processing returns. As of January 29, 2021, we had 6.7 million individual tax returns in the processing pipeline

How long you may have to wait:  It depends on where you sent your tax return and where it is in the process. We are processing returns we received over the summer due to the extended July 15 tax filing due date and, in some cases, are processing tax returns dated as early as July 15, 2020. However, we are rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available, and we are taking other actions to minimize any delays. Tax returns are opened in the order received. As the return is processed, it may be delayed because it has a mistake, is missing information, or there is suspected identity theft or fraud. If we can fix it without contacting you, we will. If we need more information or need you to verify that it was you who sent the tax return, we will write you a letter. The resolution of these issues depends on how quickly and accurately you respond, and the IRS staff trained and working under social distancing requirements to complete the processing of your return.

What you should do: Other than responding to any requests for information promptly, there’s no action you can take. We’re working hard to get through the backlog. Please don’t file a second tax return or contact the IRS about the status of your return. [emphasis added]

There’s no blame to the IRS–this is the reality of dealing with Covid. Unfortunately, with 2020 returns about to start flowing into the IRS I don’t see improvement coming on return processing anytime soon. What can you do? Basically, efile if at all possible. Electronically filed returns, for the most part, are processed smoothly. But if you have to paper-file for any reason, just expect your return to take time to be processed. I’d estimate nine months for a paper-filed return to be processed. (The IRS will be backdating the filing date to the postmark date.)

And if you do have to paper-file a return, make sure you use certified mail. It’s inevitable that some returns are going to get lost. If you have your certified mail receipt, your return should be treated as if it was filed on the date you mailed it to the IRS. This year, it’s absolutely worth the additional $5.

IRS Sending Erroneous Notices With Erroneous Content

Thursday, February 4th, 2021

Today is February 4, 2021. But the IRS computer has some other ideas about the date.

The IRS sent many CP21C notices telling individuals that their Economic Impact (Stimulus) payments were offset to your 2007 tax account. Yikes! From the National Taxpayer Advocate:

The IRS’s more than 109,000 CP21C letters informed the recipient, “We applied a credit to your 2007 [that is not a typographical error!] tax account due to new legislation. We used (offset) all or part of your economic stimulus payment to pay your federal tax as the law allows … As a result, you don’t owe us any money, nor are you due a refund.” Unsurprisingly, the letter directs the taxpayer to a general phone number to resolve this issue. Equally unsurprisingly, taxpayers will face more frustration because the official level of service so far in 2021 is 14 percent on the Accounts Management telephone lines, down from 61 percent for the same period last year, and employees have answered only nine percent of taxpayer calls. The CP21C letter may very well drive the more than 109,000 recipients to the phone lines on the cusp of filing season when taxpayers may already be struggling with filing and RRC questions. The letter and taxpayers’ phone experience may both escalate taxpayer frustration.

The only quibble I have with this is “The letter and taxpayers’ phone experience may both escalate taxpayer frustration.” Calling the IRS today is an exercise in futility for the most part. When I do get through–and I did three times yesterday!–I find the IRS telephone agents very professional and willing to assist me. But the 14% number mentioned above seems about right for the general lines (it’s probably 25% for the tax professional numbers–better, but not great), and that’s a huge issue.

Getting back to the notice, these notices were basically completely erroneous. What the IRS meant to write was:

Because we don’t show a filed 2019 tax return nor a 2018 return, we cannot issue you the Economic Impact (Stimulus) payment. You can still get the payment by taking a tax credit on your 2020 tax return.

The IRS did note this on their website but how many of these taxpayers will look on this website and get down to the bottom of the General Information questions and click on the link to read the information? My guess is less than 1% of the 109,000 who received the erroneous notice. Indeed, this should be at the top of the webpage so that those impacted by this will see it.

In any case, just another “fun” fact for the 2021 Tax Season.

Calling the IRS? Good Luck! (Because You Will Really, Really Need It)

Tuesday, February 2nd, 2021

I need to speak with the IRS regarding four clients. Unfortunately, I need to speak with three different departments within the IRS for these clients. I’ve been attempting to reach the IRS for over a week first thing in the morning (7am PST), late in the day (2-3pm PST), and in the middle of the day (sometime between 10am and 12n PST). In almost all cases I’ve heard this message:

We’re sorry, but due to extremely high call volumes in the topic you’ve chosen we cannot take your call at this time. Please try your call again later.

I did manage to get a human this afternoon. Exactly 3 minutes into my call he vanished, I heard a click, and the call ended. He did not call me back.

For two of my clients, I may be forced to write letters even though the issues are (theoretically) easily resolvable by a phone call. Instead, they’ll likely go in the 5+ million pieces of mail sitting in a trailer and the clients will have to wait (probably a year) for a response, and might have to send another letter.

And I’m calling numbers that are designed for tax professionals with theoretically less hold time. It’s basically impossible to get through on the regular numbers. I tried calling the international IRS contact number and received a busy signal; that’s the first time that’s ever happened to me. For individuals needing tax assistance regarding information from the IRS, the lyrics from Man of La Mancha’s “Impossible Dream” come to mind: “To dream the impossible dream….”

I realize the IRS (along with all of us) are dealing with Covid-related issues. However, this performance is simply unacceptable. I have clients who may be subject to levies who have filed appeals (thus, they are not supposed to be subject to levies) and I cannot speak to anyone at the IRS to have collection activities stopped on their accounts. The IRS can verify this easily during a phone call. But I can’t reach a human.

I am extremely frustrated by this. And there’s no end in sight to this horrible customer service. There’s plenty for the IRS’s new “Chief Taxpayer Experience Officer,” Ken Corbin, to deal with.