Congress open to considering a pause on automated tax notices

TAX ALERT | January 19, 2022

National Taxpayer advocate, Erin Collins, mentioned at a recent virtual seminar last Thursday that Congress may consider her recommendation to pause automated IRS notices. The Taxpayer Advocate Service (TAS) recommended that the IRS provide a six-month pause on collection matters while the taxpayers’ correspondence or amended returns are awaiting to be processed by the IRS. This will grant practitioners a reprieve to resolve ongoing issues with the IRS. Erin Collins states that the standard temporary maximum nine-week collection hold is clearly not enough time for the IRS to resolve tax matters in the current environment of severe backlogs.  

Based on the 2021 Taxpayer Advocate Report to Congress, currently, the IRS has a backlog of unprocessed returns in the millions:

• 6.2 million unprocessed individual returns (Form 1040);
• 2.8 million unprocessed business returns (Form 941);
• 2.4 million unprocessed amended individual returns (Form 1040-X);
• 427,000 unprocessed amended business returns (Form 941-X); and
• Approximately 4.75 million pieces of general taxpayer correspondence.

Due to these significant IRS delays in processing taxpayers’ submissions, millions of taxpayers turned to the local taxpayer advocate offices for help. This led to an influx of cases and resulted in staff shortages at TAS. TAS responded to an influx of cases by instituting a policy to not accept cases where the sole issue is a delay in processing an original or amended return. In addition, TAS will not accept a case where the tax return, amended tax return, tentative refund claim or any other submission to the IRS is not showing in the IRS’s system as received. In these situations, taxpayers will need to wait until the IRS posts the tax return as filed, or submission as received, to be able to initiate a taxpayer advocate case. 

Erin Collins said that this policy may change soon and TAS will likely start accepting cases involving 2019 amended returns filed before Dec. 31, 2021.

In the current state of crisis at the IRS, taxpayers should be particularly careful in choosing to use overpayments from an earlier tax year to be applied to the subsequent estimated tax payments or tax due in the subsequent tax year. This is especially true when taxpayers are using Form 1040X or 1120X overpayments to pay the following year’s tax due. In many cases, the amended tax returns or the original earlier year tax returns are not timely processed. This causes the subsequent year’s tax to remain due. Once the IRS assesses this tax due liability, it will commence collection actions that include the filing of a notice of federal tax lien or levy actions. For this reason, one option would be to timely pay the current year’s tax liability and not rely on overpayment from the prior tax year. This will prevent the IRS from taking any collection actions against a taxpayer for taxes due in the current tax year. 

Taxpayers that are not able to pay the current year’s tax due will be subject to IRS collection actions. Although tax practitioners may be able to place collection holds, such holds do not prevent the IRS from filing a Notice of Federal Tax Lien against a taxpayer’s property in the county where the taxpayer’s property is located. Placing collection holds will also not stop the IRS from making automatic offsets of any tax liabilities due to the IRS in earlier tax years with overpayments due to the taxpayer in any future tax years.

Pausing IRS automated collection notices would be a much-needed relief for taxpayers dealing with painful IRS delays. Meanwhile, if you have any questions about IRS collection procedures and options that taxpayers may have in the current environment, please consult with a Tax Controversy professional. 

This article was written by Alina Solodchikova and originally appeared on Jan 19, 2022.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2022/congress-open-to-considering-a-pause-on-automated-tax-notices.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Insero & Co. CPAs, LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Insero & Co. CPAs can assist you, please call (800) 232-9547.