THE IRS IS COMING, THE IRS IS COMING - NOT!

 
Sadly true to form, because the $80 Billion in additional funding for the Internal Revenue Service (from the Inflation Reduction Act of 2022) was in a bill introduced and supported by President Biden and the Democratic Party, the Republicans are saying the additional funding means an army of IRS auditors will soon be coming after average middle class taxpayers.
 
Clearly, like, also sadly, just about everything else said by the today’s Republican Party and Republicans in Congress, this is a lie.  

The increased IRS funding is a good thing.
 
Here is the story (fellow tax pros, correct me if I am wrong) –
 
The $80 Billion in additional funding is spread over ten (10) years – through 2031 – and the use of this money is specifically identified in the Act.
 
* $45+ Billion is for “tax enforcement activities” such as hiring and training enforcement agents, purchasing equipment for enforcement agents and investing in investigative technology.
 
* About $25 Billion is for “operations support” such as rent and facility payments, printing, postage and other office supplies and costs, security of IRS facilities, IRS-wide administration, research, and enhancement and development of information technology.  This money will help the Service address the ongoing backlog generated by the COVID-related shut-down.
 
* Almost 5 Billion is for “business system modernization” to update outdated technology and systems, cybersecurity, and to improve customer service.
 
* $3+ Billion is for “enhancement of IRS services” such as pre-filing assistance and education, filing and account services, and taxpayer advocacy.
 
* $500+ Million to oversee the administration of the additional funding provided by the Inflation Reduction Act.
 
* $500+ Million for the Treasury Inspector General for Tax Administration and the Office of Tax Policy.
 
The Act also provides $15 Billion through September 30, 2023 for the IRS to investigate and provide a report to Congress on the options and costs of creating and administering a free direct electronic filing tax return system.  This is a system that would allow, I would expect, all taxpayers, and presumably their tax professionals, to compile and submit their federal income tax returns – Form 1040 and Form 1040-SR - directly to the IRS free or charge at the irs.gov or another IRS maintained website.
 
The IRS currently has a limited online FreeFile system for low income taxpayers (which we have been told is used by only 3% of those who qualify) – but this system is not a direct submission of returns to the IRS.  The actual compilation and submission of the returns is done by commercial tax preparation and tax preparation software companies and requires taxpayers to share personal financial information with these third-party for-profit companies.  As I understand it, the new system the IRS will investigate will be completely created and administered by the Service and will not involve any third-party commercial “partners”. 
 
What would be ideal is a system similar to the New Jersey Division of Taxation’s current program which allows all taxpayers, or their tax professionals, to submit NJ-1040 returns directly to the Division free of charge online using Division created and maintained software.  I would suggest that the IRS study the NJ system.
 
Clearly the greater the amount of gross income, and the more involved the return, the more likely an audit will find purposeful or inadvertent/unintended errors on the return and generate additional tax dollars.  There are not great sums of money to be found by auditing average middle class taxpayers.  Whatever you may think of the IRS, the Service is not stupid and it knows this.  In addition, Treasury Secretary Yellen has issued a directive that the IRS should not increase examinations of taxpayers making less than $400,000.  The increase in IRS audits that results from the additional funding will correctly be on high-income taxpayers.
 
The IRS has been underfunded for years.  And, despite reduced funding, each year Congress gives the Service more work to do - such as having it administer the recent stimulus payments and to administer the continued and expanding erroneous distribution of government social welfare and other benefit programs via the Tax Code.  This additional funding for the Internal Revenue Service is truly a good thing for everyone, except perhaps tax cheats.
 
Whenever I discuss IRS administration nowadays, I always add this commentary:
 
Trump never does anything, including appoint what he considers “underlings”, without some kind of required quid pro quo and pledge of loyalty.  So, I was understandably skeptical when Trump appointed a new IRS Commissioner.  However, hearing Commissioner Rettig speak at the National Association of Tax Professionals national conference in Washington DC shortly after his appointment I was not unimpressed and decided to give him the benefit of the slim doubt. 
 
However, the proven erroneous decision to very literally lock down the IRS for over 6 months in reaction to COVID and the problems and issues it generated has made me wonder if this was a conscious decision to attempt to at least hinder IRS audits and enforcement – similar to the way Trump’s Postmaster General appointee DeJoy purposefully tried to destroy the Post Office to invalidate 2020 mail-in ballots, which were expected to be mostly for Biden – and was Rettig’s “quid pro quo”.
 
I will not be completely comfortable that the IRS is being properly administered at the top until a new Commissioner is appointed.
 
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THE BEST ONLINE TAX RESOURCE

 

Whatever you may think of the IRS – and thanks to the excessive 2020 shut-down in reaction to COVID the Service today is totally FU-ed – the website www.irs.gov remains an excellent resource for tax planning and preparation.

At irs.gov you can –

* Access, download and print current and past year federal tax forms and instructions - click here.

* Check the status of a refund going back several years (once the return has actually been processed by the IRS) - click here.

* Access your online tax account and request copies of tax records including transcripts of past tax returns, tax account information, wage and income statements - click here and here.

* Keep up-to-date on changes to federal tax law and IRS rules and regulations - click here.

* Get answers to your tax questions via FAQs on specific tax topics - click here.

* Calculate the amount of sales tax deduction to claim on Schedule A - click here.

And more.

And the website of your state tax agency also has similar resources.  Some states, such as New Jersey, will allow you to electronically submit your state tax returns directly to the appropriate agency free of charge without the need for flawed and expensive commercial software.  You can find links to the tax agencies of all 50 states and the District of Columbia here.

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BUT THEY CASHED MY CHECK!

 

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.

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MORE PROOF

More proof that the IRS is totally FU-ed.

Taxpayers had an overpayment of $782 on their 2020 Form 1040-SR.  They requested, on Line 36, that $375 be applied to 2021 estimated taxes as the first quarter payment.  The net refund requested on Line 35e was $407.  The return was filed in March 2021.

The taxpayers received a refund check from the IRS in July for $787.87 - $782.00 plus $5,87 interest.  They also received CP30A notice from “Sam” stating that “We’ve reduced your penalty for failing to pay estimated taxes” as an explanation why the refund was $782 and not $407.

What penalty for failing to pay estimated taxes?  I NEVER calculate a penalty for underpayment of estimated taxes on ANY federal or state tax return I prepare – and I NEVER include a Form 2210 with the return.  It is my opinion that if the IRS wants to assess a penalty let them do so – and I will deal with it only if they do.  I did not make any entry on Line 38 of the 2020 Form 1040-SR.

This CP30A was informational only and did not request or require any action by the taxpayer.  However, it has become crystal clear that every single notice issued by the IRS nowadays is erroneous.  While you should not ignore an IRS notice (except the one telling you your 2020 return was not received and you should file or refile it) – you should never assume that it is correct or that it contains any actual facts.  Or that you should do as it instructs. 

I continue to wonder if the IRS will ever fully recover from its 2020 shutdown.

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PAPER IS THE IRS KRYPTONITE

As most of you probably know, in my 50 years as a paid tax preparer I NEVER used flawed and expensive commercial tax preparation software to prepare or submit a federal income tax return (and I never will) – so I never “electronically filed” a Form 1040.  It is not that I oppose electronic filing – I do not.  I simply can’t do it.    

All my 2020 Form 1040s and 1040-SRs were prepared manually and mailed to the IRS by the client.  So, I expect the majority of the 2020 tax returns I prepared are currently part of the 7 Million paper-filed returns sitting in a pile somewhere in an IRS office – the direct result of the Service totally shutting down for over 6 months in 2020 in reaction to COVID.  Refunds requested by my clients that have been issued were seriously delayed and many clients are still waiting for their check.  And a large contingent of clients recently received the initial wave of CP 80 notices I described in yesterday’s post “WHAT TO DO IF AN IRS NOTICE TELLS YOU IT HAS NOT RECEIVED YOUR 2020 RETURN”.  

The National Taxpayer Advocate recently stated, "Paper is the IRS’ Kryptonite".  In a recent release the IRS recommended that taxpayers file their 2021 tax return electronically to assure prompt processing and request direct deposit for prompt issuance of any refund.

If paper is the Service’s “kryptonite” and it truly wants all taxpayers to submit their returns electronically it should allow taxpayers, and tax preparers, to submit federal income tax returns directly to the Service free of charge on the irs.gov website via an IRS created and maintained electronic filing system.

Before I retired most of the state returns I prepared were for NJ residents.  For many years now I have been able to go to the website of the NJ Division of Taxation and directly electronically file client NJ-1040 forms free of charge originally using the NJWebFile system and more recently via the improved New Jersey Online Income Tax Filing system.  I have had minimal problems with these NJDOT created and maintained electronic filing systems over the years.  FYI in the last couple of years I could also file NJ corporate income tax returns electronically through a similar state created and maintained system.

The Internal Revenue Service should create a system similar to NJ’s online income tax filing system for electronically filing federal income tax returns.

The IRS does have a Free File program available to taxpayers whose Adjusted Gross Income (AGI) is $73,000 or less.  But it uses outside commercial tax preparation software (highlights are mine) –

“To receive a free federal tax return, you must select an IRS Free File provider from the Browse All Offers page or your Online Lookup Tool results. Once you click your desired IRS Free File provider, you will leave the IRS.gov website and land on the IRS Free File provider’s website. Then, you must create an account at the IRS Free File provider’s website accessed via IRS.gov to prepare and file your return.”

This means you need to provide your tax and other personal information to an outside software company - and there is no doubt in my mind that the software company will attempt to get some money from you for auxiliary services like filing state returns.

So IRS, if you really want all Americans to file their income tax returns electronically provide them with a way to do so free of charge on the IRS website without using any outside commercial tax preparation software.

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WHAT TO DO IF AN IRS NOTICE TELLS YOU IT HAS NOT RECEIVED YOUR 2020 RETURN

 

Many of my clients have received notices from the Internal Revenue Service stating that they have an unidentified credit for tax year 2020 and that the Service had not received their 2020 income tax return.  They all seemed to have been mailed out to the taxpayers on the same date – a bulk automated mailing by the Service perhaps late last week.

In all of these cases the client timely mailed their 2020 return, which I prepared manually, to the IRS with a check for a balance due accompanied by a 2020 Form 1040-V.  It is obvious the IRS received the tax return, since the notice acknowledges receipt of the payment.

It is clear that, as I have posted before, the IRS is totally FU-ed – a direct result of the Service’s decision to completely shut down for over 6 months in 2020 in reaction to the pandemic.    

The notice tells the taxpayer to file their 2020 return or re-submit to the IRS a copy of the 2020 return that was filed with an original signature (or signatures if a joint return) and copies of all forms, schedules and attachments, including any W-2s or 1099s, that were part of the original filing.

My initial advice to the clients who received this notice, supported by a discussion of the issue on a Facebook tax preparer group, was to do as the notice instructed and send the IRS a copy of the original return and all attachments.

However, one client told me he called the IRS about the notice and, surprisingly, was able to get through without much wait time.  The IRS employee to whom he spoke told him NOT to re-submit his 2020 Form 1040 return as the Service was developing an “internal procedure regarding the 2020 tax returns”.

I just read today in a “tweet” that (highlights are mine) -

“The IRS will halt the use of automated notices in cases where a payment has been credited to a taxpayer but no tax return has been processed in an effort to help ease confusion related to a backlog in paper filings.

‘In many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed. Stopping these letters — which could have otherwise been sent to thousands of taxpayers — will help avoid confusion,’ the agency said in a January 26 statement.”

Clearly the 2020 tax returns of my clients ARE a part of the Service’s current paper tax inventory and simply hasn’t been processed.

So, if you received a notice from the IRS reporting an unidentified credit but no receipt of a 2020 return it appears you should do nothing.   Do not resend a copy of your 2020 return to the IRS.

This makes sense.  The IRS is already inundated with literally millions of pieces of unprocessed correspondence and millions of unprocessed 2020 returns.  Sending a second filing of a 2020 return the IRS already has will only add to this humongous backlog and exacerbate the problem.

As I have also posted before - It will take many, many, many months for the IRS to fully recover from its 2020 shutdown, if it ever does.

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THE IRS IS TOTALLY FU-ED!

 

The disastrous fallout from the Internal Revenue Service’s decision to completely shut down for over 6 months in 2020 in reaction to the pandemic continues. 

* Taxpayers continue to be frustrated by erroneous notices from the IRS - including those saying the 2020 tax return they had timely and correctly filed with a full payment of the balance due have not been received, although the same notice acknowledges receipt of the payment.

* Letters sent out by the IRS identifying the amount of advance Child Tax Credit payments and economic stimulus payments issued in 2021 – information necessary for the proper preparation of 2021 income tax returns - contain errors.

* Correspondence in response to IRS notices related to alleged outstanding tax debts and other issues have been ignored.

* Many taxpayers are still waiting to receive refunds for timely filed 2020 federal tax returns.

The IRS is dealing with a backlog of millions of unprocessed 2020 income tax returns, amended returns and collection-related and other correspondence.  

Most state tax agencies, like the NJ Division of Taxation, also closed down their offices during 2020, but employees were able to competently process returns, issue refunds, and deal with correspondence during this time with minimal delays.  The problems exist only with the IRS.

I do sympathize with the current plight of honest and competent IRS employees, which I expect is the majority of employees.

What to do?  Unfortunately, the answer is to just be patient.  And do not let any tax year 2020 issues delay the preparation and filing of your 2021 federal and state income tax returns.  If the 2021 IRS Child Tax Credit and/or Economic Impact Payment letter(s) is/are wrong use the correct information from your financial records to reconcile these payments on your 2021 return.

What not to do - 

I need to continually say this – there is absolutely nothing whatsoever your tax preparer can do to expedite the processing of your 2020 return, amended return or correspondence, or the issuance of your 2020 refund.  And - your tax preparer had absolutely nothing to do with the delays to your return, correspondence or refund.  While you should send copies of any IRS or state tax correspondence you receive to your preparer DO NOT call or email him or her if your refund is late.  And, looking forward, DO NOT call or email your tax preparer to ask about your 2021 refund if that is late. 

It will take many, many, many months for the IRS to fully recover from its 2020 shutdown – if it ever does.

What the IRS needs to do is, as I have said from the beginning of this mucking fess, and as a coalition of tax preparer organizations have recently requested the Service to do, immediately cease all collection activities until it has completely processed the backlog of correspondence.

The Service also needs to develop a detailed strategic plan for dealing with office closures in the event, heaven forbid, something like COVID happens again in the future.

And, nothing new here, Congress needs to properly fund the Internal Revenue Service.

So, the bottom line – be patient with the IRS and do not bug your tax preparer.

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A LITTLE THIS-A, A LITTLE THAT-A

 
+ The IRS has released the 2021 Form 1040 and 2021 Form 1040-SR.  Click here to download these forms as well as other 2021 IRS forms and schedules.

I will review the changes to the Form 1040, Form 1040-SR and Schedules 1, 2 and 3 here at TWTP next week.

+ Here are some more examples of the damage done by the IRS excessive COVID-19 closure – and more proof that the IRS is FU-ed - from fellow tax pros (highlights are mine):

“I e-filed a 1040X in August and it still doesn't show up in "\’Where's My Amended Return?’ Called the e-file service to follow up. Yes, the IRS has it, but expect a 40 week wait time.  I said, ‘I think I misheard you.’  She said, ‘No, you didn't.’ 40 Weeks!” – Jan Roberg

“I am currently quoting to clients for IRS processing time:

Paper-filed amended return: 12-18 *months*
Electronically filed amended return: 8-14 *months*
These both should be weeks rather than months, but this is the world we live in today.” – Russ Fox

"I filed a 2019 amendment in August 2020.  I am still waiting on my refund.  I got the state refund in 7 weeks."  - Steve  

This is unacceptable – but there is nothing taxpayers, or tax professionals, can do about it.

DO NOT contact your tax preparer to ask why you haven’t received your federal refund!

FYI – the IRS is paying interest on late refunds (which is taxable on your 2021 or 2022 return).

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THE IRS IS TOTALLY FU-ED!

 

The excessive total shut-down of the IRS in 2020, in reaction to the COVID-19 pandemic, has resulted in substantial delays and backlogs in terms of processing 2019 and 2020 original and amended returns and processing correspondence.  This has caused substantial agita, to say the least, for taxpayers and tax professionals.  And generated additional financial costs for taxpayers.

A client recently received a letter from the IRS that began –

“Dear Taxpayer:

Our records indicate that we received correspondence from you on July 27, 2021, concerning your Form 1040 for the period(s) {FYI – 2018} shown above.  We are unable to determine if your problem was resolved satisfactorily.

If your inquiry has not been resolved, please resubmit your information.”

The inquiry had not been resolved, or even properly processed or responded to.  It appears we have to waste our time resubmitting everything all over again.  Which just adds to the backlog and the problem.

It is clear that the IRS is totally FU-ed! 

If not already done, the IRS NEEDS to immediately cease all collection activity on all alleged outstanding balances for all returns until this serious problem is fixed.

Let us hope the damage done to the IRS by the excessive shut-down and closures is not irreparable. 

Going forward, the IRS needs to develop a plan in case we are ever faced with a similar situation – an international pandemic – again.

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WHAT THE IRS SHOULD DO

In reaction/response to the COVID-19 pandemic the Internal Revenue totally closed down all operations and offices for many months in 2020.  During this period, the IRS did not process tax returns – current and amended – and did not process taxpayer and tax professional correspondence.  I do not know the extent to which payments made during this period were acknowledged and processed.
 
The “correctness” of the extent and duration of the IRS closure is open to interpretation.  But it happened and we must now deal with the consequences. 
 
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.
 
Taxpayers in general are truly intimidated by continual, however erroneous, IRS notices.  And they will pay the requested balance due although they know the amount requested being wrong.  Many taxpayers 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.
 
The IRS has acknowledged the backlog of returns and correspondence.  But it continues to automatically issue balance due notices, regardless of the fact that it is aware that the taxpayer may have previously responded to the notice providing information and documentation.  These continued notices assume the taxpayer had totally ignored all previous notices, which is often not true.
 
Responses to the continued erroneous mailings create more correspondence and increase the already humongous backlog.  And taxpayer erroneous overpayment of incorrect assessments must be addressed by taxpayers and tax pros, creating more correspondence to add to the pile.  This only compounds the problem.
 
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.
 
Tax professional membership organizations should join together to urge the IRS to do this now.
 
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DO NOT AMEND

It appears, according to IRS Commissioner Chuck Rettig, that the IRS will automatically process refunds for taxpayers who have already filed their 2020 income tax returns and claimed the full amount of unemployment benefits received as taxable income.  

 

As I explained in a previous post (click here) - “The American Rescue Plan . . . exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000.” 

 

“Do not file an amended return at this time,” Rettig told a congressional panel on Thursday. “We believe that we will be able to handle this on our own. We believe that we will be able to automatically issue refunds associated with the $10,200.”

 

Rettig explained that the IRS would soon officially release details for taxpayers about how to proceed.

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IT'S OFFICIAL

From IR-2020-134 dated June 29, 2020 (highlight is mine) ―

“The Department of the Treasury and IRS today announced the tax filing and payment deadline of July 15 will not be postponed. Individual taxpayers unable to meet the July 15 due date can request an automatic extension of time to file until Oct. 15.”

An automatic extension is requested on IRS Form 4868.  You can also request an extension online – go here,

FYI, the automatic extension extends the time to file, not the time to pay. If you think you will owe your “uncle” you should send a check with the extension to avoid penalties and interest.

July 15th is also the deadline for filing most state returns.

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HEY, DUDE, WHERE'S MY REFUND?

In the past I have told clients and readers whose federal tax refunds were late in arriving to check the IRS website “Where’s My Refund” tool.

Unfortunately, this will not work for manual 2019 Form 1040 (or Form 1040-SR) filers whose refunds have not yet arrived.  

The IRS offices have been closed since the end of March, and are only now re-opening.  While these offices were closed nobody was opening mail or processing manual returns.  So, the IRS system has no idea if a manually-filed return has been received.  If it was received it most certainly has not been processed yet.  And clearly no refunds have been issued.

There is absolutely nothing that a tax preparer can do to expedite the processing of a 2019 tax return or the issuance of a 2019 tax refund.  Period.  End of story.  DO NOT CONTACT YOUR TAX PREPARER TO ASK WHERE YOUR FEDERAL REFUND IS.

Again unfortunately, taxpayers expecting refunds need to be patient.  They will eventually come.

The IRS office closure also means that correspondence has not been opened and read and amended returns have not been processed.  In the best of times you need patience concerning IRS correspondence - you obviously need much more now.  And be aware that the IRS will most likely be paying interest, at a rate much higher than banks, on amended return refunds - so the longer it takes to process your 1040X the more interest you will earn.

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ANSWERS

{NOTE - UPDATED MAY 24th}

I have received several emails from clients asking about their 2019 refunds and 2020 stimulus payments, and I expect many taxpayers have similar questions.  So here are the answers.

 (1) The offices of the Internal Revenue Service were closed at the end of March due to the pandemic.  Mail sent to the IRS was not opened and manual returns were not processed.  As a result, refunds requested on manual returns were not issued.  The Service reopened its offices on April 27 and called back some employees to handle what it called “mission-critical functions” such as opening the piles of mail and processing manual returns.  However, subsequent virus-related issues indicate that the delay in processing returns, current and amended, and issuing refunds will continue. 

(2) In many cases when inquiring about the status of your 2020 stimulus payment at the IRS website you will need to enter information from your 2018 tax return.  Unless you filed your 2019 return in February or early March the information from your 2019 return is not in the IRS system.

(3) Just because the IRS cashed your check for payment of a balance due sent with your 2019 manually filed return does not mean your 2019 return has been processed.  Manual returns with payments are sent to bank lock-boxes.  The check is promptly deposited and the return is sent to the IRS for processing. 

(4) If you are receiving Social Security benefits that are directly deposited this does not mean your 2020 stimulus payment will automatically be directly deposited to your bank account.  This only applies if you are a “non-filer” – for example your only source of income is Social Security and you do not have to file a federal tax return.  The IRS will only directly deposit these payments for those who file federal income tax returns if it has the direct deposit information for a refund requested on the 2019, or more probably 2018, return.

(5) The date of mailing, or direct deposit, of your 2020 stimulus payment is based on the Adjusted Gross Income (AGI) on your 2019, or more likely 2018, tax return.  The greater your AGI the later your payment will be issued.

(6) In many cases the economic stimulus payment you received, or will receive. is calculated based on your 2018 AGI, because your 2019 Form 1040 or 1040-SR, if filed, had not been processed when the amount of the checks was calculated.  The IRS offices were closed down from the end of March until the end of April and 2019 returns were not being processed.  So, your check may be less than the actual amount to which you are entitled.  However, according to the IRS website, as of this writing, “The IRS is not able to correct or issue additional payments at this time and will provide further details on IRS.gov on the action people may need to take in the future.”

(7) The economic stimulus payment is administered via new Internal Revenue Code Section 6428.  IT IS NOT TAXABLE INCOME.  The payment will be treated as an “advance credit”, like the Obamacare advance premium credit, and must be reconciled, based on 2019 information, when preparing your 2020 tax return next year.  If you are entitled to more than you actually received in 2020 you can claim the additional amount as a refundable credit on your 2020 Form 1040 or Form 1040-SR.  If you received more than you should have you do not have to pay back the excess.  

(8) As of this writing the deadline for filing your 2019 federal and state income tax returns, and paying any balance due, is July 15, 2020.  This has not been further extended to September, October or December.

(9) Perhaps most important – there is absolutely nothing your tax preparer can do to expedite the processing of your 2019 tax return or 2020 stimulus payment or the issuance of your 2019 refund or 2020 stimulus payment check.  Do not ask your tax preparer why you have not received your  2019 refund or your stimulus payment yet, or when you will get it.  If you want to find out about your stimulus payment go here.

Now when I receive an email question from a client, I can simply provide a link to this post.

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THIS JUST IN

Here is an update on the situation at the IRS.

The IRS has recalled certain employees back to previously closed IRS offices to handle what it calls “mission-critical functions” . These employees will open mail that has been held for weeks, process paper tax returns that may offer refunds to taxpayers, work on returns with refundable credits, answer taxpayers' questions on the toll-free lines and perform “Income Verification Express Service” and certain lien/levy functions. 

There is no indication of how many employees have returned or which phone lines are now available and for what hours.

So, paper returns will be begin to be processed again.  But at a much slower pace than in normal times.

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GUIDANCE FROM THE IRS ON THE NEW FILING AND PAYMENT DEADLINE

The IRS has released a “Filing and Payment Deadlines Questions and Answers” page at irs.gov.

Here are some highlights –

* The postponement of the filing and paying deadline to July 15, 2020 applies to Form 1040, 1040-SR, 1041, and 1120.

* The relief “applies only to Federal income tax returns for the 2019 taxable year.”  It does not extend the April 15, 2020 deadline for filing an amended 2016 Form 1040.

* No relief has been provided for filing or payment dates other than April 15, 2020. The filing of Federal tax returns due March 16, 2020, such as Form 1065 and Form 1120-S, has not been postponed.

* “Normal filing, payment, and deposit due dates continue to apply to both payroll and excise taxes.”

*“Normal filing and payment due dates continue to apply to estate and gift taxes.”

As for IRA contributions –

* “Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020.”

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RELIEF FOR TAXPAYERS WHO WERE VICTIM OF THE IRS WITHHOLDING FU

The big tax news of the week is “IRS axes estimated tax penalties for 400,000 taxpayers”, as Michael Cohn reported at TAXPRO TODAY.

The announcement was made in IR-2019-144.

In his article Michael explains (highlights are mine) -

“Earlier this year, in response to complaints from taxpayers who discovered they hadn’t withheld enough from their paychecks last year after passage of the 2017 tax overhaul and ended up with high tax bills, the IRS lowered the usual 90 percent penalty threshold to 80 percent to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The agency also removed the requirement that estimated tax payments be made in four equal installments, as long as they were all made by Jan. 15, 2019.  The 90 percent threshold was initially lowered to 85 percent on Jan 16 and, after further complaints from lawmakers, it was lowered once more to 80 percent on March 22.

The IRS said it would apply the waiver automatically to the tax accounts of all eligible taxpayers, so there’s no need to contact the IRS to apply for or request the waiver. The automatic waiver will be given to any individual taxpayer who has paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but didn’t claim the special waiver available to them when they filed their 2018 return earlier this year.”

Previous to this announcement, despite the changes to the policy for calculating the penalty for underpayment of estimated taxes, the IRS had been sending out notices to taxpayers assessing the penalty based on the previous 90% threshold and equal quarterly payment requirement.  The IRS has said that any taxpayer who had paid the erroneously calculated penalty will receive a refund check for the overpayment in a few months.  

Michael also explains –

“For those taxpayers who haven’t filed their 2018 taxes yet, such as those who asked for an extension until Oct. 15, the IRS is urging every eligible taxpayer to claim the waiver on their tax return when they do file.”

The way to claim the waiver on a manually prepared return is by attaching IRS Form 2210 to the tax return.

This announcement reminds us that you should never automatically pay any penalty or balance due notice you have received from the IRS or a state tax agency.  In my experience over half, more like 2/3, of all such notices are wrong. 

Whenever you receive any correspondence about a tax return give it to your tax professional immediately.  If you “self-prepared” the return, manually or using a “box”, read the notice carefully and verify the calculation of any penalty.  Better yet, consult a tax professional.

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