Clients who have received the IRS CP80 Notice telling them they have an outstanding credit for 2020 but they have not filed their 2020 return ask me, “How can the IRS say I haven’t filed my return when they cashed my check?”
Here is the story as I understand it (fellow tax pros – correct me if I am wrong) -
When you request a refund on a paper return you mail your tax return directly to the IRS. Millions and millions of unprocessed 2020 paper-filed tax returns are currently sitting in piles in IRS offices.
When you have a balance due and are sending the IRS a check you mail your return and check to a Post Office Box which is maintained as part of a bank “lock box” service. The bank promptly processes and deposits the check, based on the information provided on the accompanying Form 1040-V payment coupon, and sends the paper tax return to the IRS, where it joins the millions and millions of unprocessed returns in the pile. The bank also electronically reports to the IRS that you made a payment for 2020.
The IRS system is aware of your payment but has not processed the return that corresponds to that payment - so the payment is not matched to a specific tax liability. The Service system has a record of your payment but no record of your return.