By: Doug Dean | ddean@deandorton.com and Jon Tennent | jtennent@deandorton.com
Even before the pandemic, the IRS was experiencing problems in timely handling many types of correspondence dealing with tax liabilities. Taxpayers’ and their advisors’ patience with the process was tested routinely.
For example, when the IRS identifies discrepancies between third party information returns, such as 1099 forms, and what an individual reported on his income tax return, the IRS sends a notice showing an increase in tax, related interest, and, sometimes, penalties, or requesting an explanation of why the IRS adjustment is incorrect. In the latter case, the individual or his tax professional typically mails the explanation to the IRS. The next step frequently has been a notice from the IRS confirming receipt of the explanation and saying that more time (e.g., 60 days) is needed to process the information. Sometimes this is followed by another IRS notice saying still more time is needed. Little, if anything, can be done to speed the process.
As you likely can imagine, the pandemic and resulting IRS office lockdowns have caused longer delays in the IRS’s ability to timely respond to communications. Even more patience now is required.
Another pandemic-related problem is happening for taxpayers who took advantage of the extended July 15 filing date. The IRS has processed tax returns but in some cases has not processed payments, leading its computer systems to generate late payment notices. This is a particular problem for trust and estate income tax returns.
Recognizing the problems caused by these and other situations, the IRS announced on August 21 that it temporarily will stop mailing many types of balance due notices until the backlog, which has been reported as being approximately 12 million items, has been cleared. Readers are cautioned, though, not to ignore IRS correspondence without ascertaining whether you need to timely respond.