How to deal with the current IRS confusion
Taxpayers are receiving mixed messages from the IRS with erroneous notices and confusing letters.
Many people who are due refunds from the IRS are receiving a CP14 Notice which states that they have a tax liability.
Part of the confusion is being caused by tax changes that were made during tax season. The American Rescue Plan Act was signed into law on March 11, 2021, and it excluded up to $10,200 of unemployment per person of taxable income in 2020. Individuals and married couples whose modified gross income was less than $150,000 were entitled to the exclusion.
The IRS told taxpayers that in most cases they should not amend their tax returns to correct the unemployment issue. However, an amended return would be needed if the taxpayer would qualify for the Earned Income Tax Credit or other key credits, based on a lower taxable income.
Some taxpayers didn’t send money owed to the IRS by the May 17 deadline because they knew that they would be due a refund when their return was reprocessed.
Unfortunately, the IRS sent automated notices in early July to collect the amount that was shown on the original return, even though taxpayers would be due a refund when the IRS made the corrections.
Almost 4 million people were supposed to get unemployment related refunds in mid-July, according to the latest news from the IRS.
It’s best not to ignore a letter stating that you owe the IRS even though you know you are due a refund. It may require a call or letter to put a “hold” on further collection activity. You can try to call the IRS a few times until you are able to discuss the matter with an IRS employee. Write the employee’s name and badge number that you talk with and the time and date of the call.
You can also send a letter to the IRS that explains that you are waiting for the IRS to reprocess your tax return and that you are due refund. The letter should be sent by certified mail in case you need to prove that your letter had been mailed.
An additional problem that I have encountered with the IRS is that they are mailing letters to taxpayers requiring the payment of late penalties when the return was not filed late. Their extension had been filed on time by certified mail. After calling the IRS about this matter, I was told that the problem was caused due to the IRS being slow processing mail and the tax return was processed before the extension. The IRS had already corrected the late penalty when I called. However, I was told that the IRS should be called in similar circumstances.
If a tax professional prepared your return and you received an erroneous IRS letter, your tax professional can generally get through to the IRS quickly on the Tax Practitioner Hotline.
David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at email@example.com