IRS Notices for Late Payments & Late Filings

Please note: This blog is current to the date of its publication, Monday, Nov. 9. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.

 

At present, the Internal Revenue Service (IRS) has started mailing late payment and late filing notices all due to the overwhelming mail backlog. While there is currently limited guidance available on the issue, below is a recap of recent updates from trusted industry partners and publications, as well as the IRS.

Updated Nov. 2, 2020

The IRS announced several changes designed to help struggling taxpayers impacted by COVID-19 to more easily settle their tax debts with the IRS. The new IRS Taxpayer Relief Initiative is expanding on those existing tools even more. The revised COVID-related collection procedures will be helpful to taxpayers, especially those who have a record of filing their returns and paying their taxes on time. The IRS also modified Installment Agreement procedures to further limit requirements for Federal Tax Lien determinations for some taxpayers who only owe for the 2019 tax year.

Updated Oct. 30, 2020

The IRS reminds taxpayers and tax professionals to use electronic options to speed the processing of tax returns, refunds and payments. Taxpayers who are unable to pay are encouraged to consider available payment options as penalties and interest continue to accrue.

Certain IRS services such as live assistance via telephone, processing of paper tax returns, and responding to correspondence continue to be extremely limited. Any tax return which requires review, whether filed electronically or by mail, may also take longer as many review processes cannot be done virtually. While some volunteer tax preparation sites are operating at a reduced capacity, most remain closed until further notice.

Processing Delays for Paper Tax Returns: The IRS is experiencing delays in processing paper tax returns due to limited staffing. If you already filed a paper return, it will be processed in the order it was received. Tax returns mailed between March 2020 and now have been subject to significant delays in processing.

Be patient. Do not file a second tax return or contact the IRS about the status of your return.

Amended tax returns for prior years: Until recently, all amended returns had to be paper filed, by mail. Only recently, in Aug. 2020, did the IRS enable e-filing of amended returns, and then only for 2019 amended returns. Previously, before COVID-19 and the shutdown, the IRS warned taxpayers that processing times for amended returns were generally 8 to 12 weeks. Now, with the mail backlog that was created, processing of these returns has been delayed by months.

Updated Oct. 10, 2020

The IRS has yet to process an estimated 2.5 million hard copy income tax returns from within a pile of 5.3 million pieces of unopened mail. Within that pile of unopened mail are payment checks. That creates an additional problem for many e-filed returns as the IRS system is reporting a tax return as filed with no payment remitted. Tax collection staff are currently going through 1.3 million pieces of mail a week and placing a priority on spotting hard copy tax returns and processing a refund if one is due.

Since the re-opening of the IRS offices in late July, workers have been unable to catch up as more correspondence arrived during tax season. Despite that fact, the IRS began sending out notices of delinquent taxes again this month. Some taxpayers will begin seeing the updated 500 series notices with current issuance and payment dates in late October or early November.

The 500 series includes three different types of notices that alert taxpayers about varying stages of nonpayment — the CP501, the CP503 and the CP504. To compound the problem, taxpayers are currently unable to speak with anyone at the IRS due to the high volume of calls they are receiving.

After receiving complaints from taxpayers and members of Congress, the IRS put information on its website regarding the following issues:

Outstanding Payments

• The payments will be posted as of the date when they were received by the IRS, not the date when the IRS processes them. In most cases, this will eliminate or minimize penalties and interest for late payments.
• If you mailed a check to the IRS that has yet to clear your bank, with or without a return, the IRS says that you should not cancel or put a stop-payment on that check. However, you should be sure that you have adequate funds in the account from which the check was written, so that the check will clear when the IRS does process it.
  • Normally, the penalty for a dishonored payment (a bounced check) of more than $1,250 is 2% of the amount of the check, money order or electronic payment. If the amount is $1,250 or less, the penalty is the amount of the check, money order or electronic payment, or $25, whichever is lower.
  • However, in order to provide fair and equitable treatment during the COVID-19 emergency, the IRS is providing relief from bad-check penalties. The dishonored payment penalty will be waived for dishonored checks that the IRS received between March 1 and July 15 due to delays in IRS processing. However, interest and other penalties may still apply.

IRS Notices

• If you received a notice but mailed in your tax payment on time:
  • The disconnect caused by payments not being processed into the IRS computer system created the automatic distribution of the CP14 notices, and the IRS is aware of this. Checks received by the IRS will be posted to a taxpayer’s account based on the “mailbox rule.”
  • The “mailbox rule” basically says that a return, a claim for refund, or a payment due is considered timely filed or paid if deposited into the hands of the U.S. Postal System in an envelope or other acceptable packaging, properly addressed with the required postage paid and the date of the postmark falls on or before the due date of the item being submitted.
  • If properly done, the postmark date is deemed the date of delivery or payment. Returns or payments filed outside the United States or using a designated private delivery service also can make use of the mailbox rule.

• If you received a notice, and your taxes are still outstanding:
• The IRS is now recommending that taxpayers who have not yet responded to a CP14 notice promptly respond and remit payment utilizing Direct Pay or the Electronic Federal Tax Payment System (EFTPS) by phone or online.

Updated Oct. 7, 2020

According to an IRS official’s recent comments, if a taxpayer paper-filed an extension request and then e-filed the return before the extension request was processed, the IRS will “systemically abate” any failure-to-file penalties once the IRS has processed the extension request.

Similarly, the official said that the IRS will “systemically abate” late-payment penalties, as long as paper checks were mailed by the extended July 15 due date, and once the IRS has processed all its backlogged mail.

The IRS official said that the IRS’s mail backlog has limited correspondence exams, and the IRS has put its automated levy program on hold while it works through its backlog.

However, taxpayers should respond to all exam notices, if only to explain why they are unable to comply with requests for information contained in such notices.

Each year, the IRS sends millions of notices and letters to taxpayers for a variety of reasons. Here is what SST recommends you should do in case one shows up in your mailbox:

• Do not ignore the IRS correspondence. Many taxpayers are currently receiving notices and you need to be assured that your notice is being properly handled.
• Contact SST and send them the complete IRS notice – all
• SST will then contact you to discuss a plan for dealing with the issue.
• If required, SST will prepare a Power of attorney to respond on your behalf.

While the IRS return process is complex, the experts at SST are equipped to help. IRS notices can be expensive and time consuming, let us help you navigate.  Contact us today for recommended next steps for tracking your return or responding to a notice.

Articles from Forbes, Accounting Today and Bloomberg Tax were referenced during the drafting of this post. Special thanks to SST Tax Supervisor Velma Garcia for providing the content of this post.