Wednesday, December 29, 2021


It is time again for my annual review of the year in taxes.

The 2021 tax filing season – for filing 2020 returns – was my 50th!  My first year preparing 1040s was 1972 – preparing 1971 returns – as an apprentice with my uncle’s tax preparer James P Gill on Sip Avenue just off Journal Square in Jersey City, having no prior knowledge of or experience with tax returns.  Back then I had no idea this would become my career for 50 years.

I posted a series looking back on my 50 YEARS OF PREPARING 1040s here at TWTP that included –


* MY FIRST 1040


I am now officially retired!

The start of 2021 found us in the height of the COVID-19 pandemic.  The entire season was spent in the office, leaving only to go to the Post Office, buy food and dine out locally.  I am not complaining – I was pleased with this.

The tax filing season began for me, as it always does, on February 1st, ended on May 17th.  For the second year in a row, and, as far as I know, only the second time in history, the initial tax filing, and paying, deadline was extended.  The season actually ended on May 16th, as I never work the last day.

The big issues of the filing season had to do with pandemic relief.  It was truly the rare federal return that I could complete in one sitting.

First, taxpayers were required to reconcile the first two Economic Impact Payments on their 2020 Form 1040 (or 1040-SR).  If a taxpayer received less than they were entitled to based on actual 2020 income they could claim the shortage as a refundable Recovery Rebate Credit on their return.  If they got more than they were entitled to they did not have to pay back the excess.  I had to waste too much time trying to get the amount of the stimulus payments, if any, clients received in 2020 and early 2021 (this second payment should have been reconciled on the 2021 return), despite my specifically asking clients to tell me what, if anything, they received in EIPs in my January letter.

While the Recovery Rebate Credit was good for many clients – putting more money in their pockets – the fact that the IRS worksheet for the credit reconciled each of the two Economic Impact Payments separately, rather than combining both payments, was stupid (for the government) and financially imprudent (again for the government).  If a taxpayer got more than they were entitled to in the first payment but less than they were entitled to in the second payment, the first payment excess was not applied to the second payment shortage. 

For example, if a taxpayer got $200 too much in the spring of 2020 but $200 too little in January 2021 it was not a wash.  The $200 overpayment from 2020 was ignored and the taxpayer got the full $200 shortage for 2021 as a refundable credit on their tax return.  While the reality is between the two payments the taxpayer got exactly what he/she/they was/were entitled to, the taxpayer actually ended up with $200 more than he/she/they was/were entitled to.

And second, the American Rescue Plan Act, with two provisions that affected 2020 returns, was not signed into law until March 22, 2021.   

The 2020 tax return changes were -

1) The first $10,200 of unemployment benefits received in 2020 was tax free on returns with an AGI of less than $150,000.

2) Taxpayers who received excess advance Premium Tax Credit payments in 2020 did not have to repay the excess.

I was aware of the potential 2020 changes in February, and had to hold up completing federal returns for clients who received unemployment and advance Premium Tax Credits until the law became official and the IRS told us how to properly report the unemployment exemption on the return.         

Thankfully there were no auto, computer, equipment, or weather issues of consequence for me during the 2021 filing season.  The only concern was the slowness of the Post Office in delivering work to and from me and payments to me – an ongoing effect of the attempts by Trump and his lackey DeJoy to destroy the postal service to sabotage mail-in ballots during the 2020 Presidential election.

The biggest tax-related issue of the year was the results of the truly humungous backlog of correspondence, 2019 Form 1040s (and 1040-SRs) and amended returns filed in 2020 that was caused by the IRS closing its doors for too many months due to COVID in 2020.  During the many months IRS offices were completely shut down in 2020, the Service did not process tax returns or taxpayer and tax professional correspondence.

When the IRS finally opened up again its system continued to spew out automatic intimidating balance due notices based on the information in the system prior to the closure.  However, much of the backlog of unopened and unprocessed correspondence were responses by taxpayers and tax professionals to erroneous balance due assessments, explaining the IRS error or correcting a taxpayer error.  Many taxpayers receiving collection notices paid the IRS what it asked for, despite having previously written, or had their tax professional write, to the IRS to explain errors in the assessment. 

Responses to the continued erroneous mailings create more correspondence and increase the already humongous backlog.  And taxpayer erroneous overpayment of incorrect assessments had to be addressed by taxpayers and tax pros, creating more correspondence to add to the pile, compounding the problem.

As I said in a July TWTP post - what the IRS should have done, and should do now, is put a temporary hold on all open balance due accounts and cease from sending out automatic notices and other collection activities for these accounts until the backlog of correspondence is processed.  As correspondence regarding a taxpayer notice is acknowledged in the IRS system the hold must be continued until the issue is resolved.

Making things worse, dealing with the backlog caused delays in the processing 2020 federal returns.  Many taxpayers have still not received their 2020 refunds, despite having filed their returns on time.  Thankfully, as it did in 2020, the IRS is paying interest on delayed refunds.  



No comments: