Erin M. Collins, the National Taxpayer Advocate cautions taxpayers and practitioners to be aware of the millions of backlogged IRS notices the IRS is mailing now through January. These IRS notices reflect due dates that may or may not have already passed. And, in certain occurrences, some taxpayers may receive collection notices out of order. The good news is that the IRS is providing taxpayers with additional time to respond to these notices.
Ms. Collins stresses that “….because there are many moving parts to this situation, each taxpayer needs to analyze their individual situation in order to know the proper impact to their circumstances.”
In her blog, the National Taxpayer Advocate further details the key factors and due dates taxpayers need to be aware in this new round of delayed IRS notices. She also highlights important grace periods impacting penalty and interest assessments, as well as other potential IRS collection actions.
In some cases, taxpayers who are impacted by the pandemic or other circumstances may qualify for relief from penalties due to reasonable cause if they made an effort to comply with the requirements of the law, but were unable to meet their tax obligations due to facts and circumstances beyond their control.
The National Taxpayer Advocate reminds taxpayers and tax professionals that “….as many taxpayers continue to navigate an uncertain economic future, the Taxpayer Advocate Service stands ready to help and direct taxpayers to the resources they need.”
Read the full NTA Blog to get a list of the specific IRS notices being mailed and what important actions taxpayers should take when receiving any of the listed IRS correspondence.
In June June, 2020 Collins blogged about millions of IRS notices that were created, but due to the shutdown of IRS print sites as a result of the COVID-19 pandemic, could not be mailed when generated. This situation led the IRS to purge some notices while mailing others that reflected the original date the notice was generated, not the date mailed. Additionally, notices that included a deadline for action were mailed with the original deadline based on when the notice was generated, meaning in some cases the deadline had already passed at the time of mailing. To provide additional time to respond and to protect taxpayers’ rights, the IRS included an insert with some of the notices. In November, the IRS found itself with a similar challenge, and taxpayers and practitioners should be aware that a second round of notices is delayed, and notices that are being mailed to taxpayers now and continuing through January reflect due dates that may have already passed.
November Late Notices
During November 2020, the IRS was unable to mail out over 11 million notices after they were computer generated. Dates on these notices include November 9, 16, and 23, but keep in mind, not all notices bearing these dates were delayed. Similar to the summer, the IRS purged over half of the notices that could not be sent out on time and focused on time-sensitive or statutory notices. The remaining nearly five million notices are being mailed during December and January. Good news: the IRS is providing taxpayers with additional time. In the December and January mailings of late notices, there are two groups: (1) notices with insert Notice 1052-D, Important! You Have More Time to Respond to the Enclosed Notice, and (2) notices not requiring a Notice 1052-D insert.
Late Notices Mailed With Insert
The notices scheduled to include the Notice 1052-D insert are:
- IRC § 6303 Notice and Demands that informs taxpayers of tax due and demands payment;
- IRC § 7524 Annual Reminder Notices that remind the taxpayer of an existing balance due; or
- IRC § 6213(b) Math Error Notices that inform taxpayers of a change to their return.
The insert provides the taxpayer a new due date, January 29, 2021, to make a payment to avoid additional interest, and additional failure-to-pay penalties, if applicable. The insert also provides taxpayers with math error adjustments until March 9, 2021, to contact the IRS and request the math error be reversed. The additional time for math error corrections preserves taxpayers’ statutory right to object to the IRS’s changes and later challenge the math error liability in Tax Court prior to paying it under IRC § 6213(a), after the IRS has issued a statutory notice of deficiency under IRC § 6212(a).
It is important that taxpayers take the following actions when receiving any correspondence that includes Notice 1052-D:
- Review the last page of the correspondence to determine if there is a new due date for a balance owed or a new response date.
- Disregard the notices if steps have already been taken to resolve the issue.
- Contact the IRS using the number on the notice if you have additional questions. Keep in mind that phone lines remain extremely busy due to the pandemic.
Generally, the statute provides a 21-day grace period to pay the amount due without incurring additional interest or penalties with the issuance of a notice and demand (including the initial notice and demand such as a CP 14 and annual balance due reminder notices such as the CP 71 series). Under this new procedure, if taxpayers pay by January 29, 2021, their penalty and interest will be computed to the notice date (the date reflected on the original notice) and not the December or January mailing date of the notice. Due to the delay, the IRS is providing affected taxpayers a longer grace period. The IRS has implemented computer programming for the notice and demand letters to reflect the new grace period (until January 29, 2021) for interest and the failure to pay penalties, if applicable. If payment is not made by January 29, interest and penalties will accrue as they normally would from the payment due date or return due date (depending on the penalty) until the date of payment, so it is advantageous for taxpayers to pay by January 29. To reiterate, the amount stated on the November notice and demand letters is valid and that is the amount to be paid no later than January 29.
Late Notices Mailed Without Insert
The IRS will be mailing other late notices without including Notice 1052-D. For example, these include correspondence verifying a taxpayer was a victim of identity theft or confirming an address change. This category of notices or correspondence does not include balance due notices, and these notices do not generally require a response.
Penalty Relief
Those who were assessed a penalty and have been impacted by the pandemic or other circumstances may qualify for relief from penalties due to reasonable cause if they made an effort to comply with the requirements of the law, but were unable to meet their tax obligations due to facts and circumstances beyond their control. Additionally, taxpayers may be eligible for and the IRS may provide administrative relief from a penalty under its First Time Penalty Abatement policy. Taxpayers should call the toll-free number on their notice to request penalty relief due to reasonable cause if they feel they qualify and have the necessary supporting documentation. More information about reasonable cause relief is available at IRS.gov.
Collection Alternatives
If taxpayers face a balance due on their return and are unable to pay that balance, the IRS offers alternatives to paying the balance all at once. Some alternatives include offers in compromise, installment agreements, and currently not collectible status. During 2020, the IRS expanded collection alternatives for individuals experiencing COVID-19-related financial difficulties. The IRS website contains information on these alternatives. I encourage taxpayers to reach out to the IRS if they are having financial difficulties in making payment.
Beware: Some Taxpayers May Receive Collection Notices Out of Order
Unfortunately, as the IRS has scheduled to mail the November notices in December and January, some taxpayers may receive the next collection notice before the receipt of the initial notice and demand (CP 14). This is important because the initial notice and demand provides taxpayers with a grace period to pay to avoid additional interest and penalties. Although the IRS plans to ensure that taxpayers who pay the balance due listed on the notice and demand by January 29 will eventually have their accounts corrected, taxpayers may be confused about their correct balance, the amount of associated interest and penalties, or when they must pay. Once the November notice and demand (in the same envelope with the 1052-D insert) is received, taxpayers should reference it to determine the amount of tax, interest, and any penalties calculated as of the November date and pay no later than January 29. Taxpayers should keep a copy of the Notice 1052-D insert, the original notice and demand letter, and proof of payment in case they receive any additional tax due notices from the IRS.
Many taxpayers will not receive by mail the notice CP 521, Monthly Installment Agreement Payment Reminder, normally sent in November and December. However, these will resume in January. Even though the IRS is not mailing these reminders, taxpayers are not relieved of their installment agreement obligation and should continue to make their monthly payments to maintain their installment agreements. Taxpayers can view options to pay their monthly installments here. You can view the IRS news article here.
Taxpayers now have the option to view some of their notices electronically through their Online Account. This new option gives taxpayers immediate access to some select IRS notices (including the Monthly Installment Agreement Payment Reminder) instead of waiting for them to arrive by mail.
Caveat
Because there are many moving parts to this situation, each taxpayer needs to analyze their individual situation in order to know the proper impact to their circumstances. Eligible taxpayers may contact a Low Income Taxpayer Clinic (LITC) for assistance with understanding their notice and collection alternatives.
Update on the Prior Backlog of Late-Mailed Notices
During the spring and summer of 2020, the IRS digitally created approximately 31.2 million notices that it was unable to mail on the dates planned. Of these, the IRS purged approximately 12.3 million notices as they were not statutorily required. Of the remaining late notices, only a small percentage included an insert notifying the taxpayer of additional time to act. Originally, the IRS identified 1.8 million notices requiring an insert providing an extension of time for the taxpayer to act. Unfortunately, some notices containing statutory deadlines didn’t include the necessary insert. Once identified, the IRS sent supplemental letters to taxpayers informing them of additional extensions. For example, taxpayers who originally did not receive an insert providing additional time to request a Collection Due Process hearing received another letter providing more time. Similarly, taxpayers receiving late-mailed notices of refund disallowance were subsequently sent a supplemental letter clarifying the two-year period to challenge the refund disallowance in court. Although the IRS made efforts to provide additional time for taxpayers to respond, it created much confusion for taxpayers and practitioners. After all of the challenges the IRS and taxpayers faced during the previous backlog, it is difficult to understand how the IRS finds itself in the same position. Let’s hope this backlog mailing goes more smoothly.
Given the different scenarios for different backlogged notices issued during the summer and this winter, taxpayers and practitioners may be appropriately concerned about what a taxpayer’s IRS account and taxpayer transcripts show. Unfortunately, accounts may show notices that were never mailed or may reflect the wrong date for when a notice was sent. Taxpayers may be uncertain as to when the IRS took an action or how long they have (or had) to act themselves. In the coming months, we will continue to work with the IRS in an effort to protect taxpayers’ rights and provide information and transparency regarding which notices were actually mailed and when they were mailed, as well as certainty regarding any deadlines that were affected by the late mailing of notices.
As many taxpayers continue to navigate an uncertain economic future, the Taxpayer Advocate Service stands ready to help and direct taxpayers to the resources they need. Find your Local Taxpayer Advocate.