Imagine walking to the mailbox and discovering a letter from the IRS stating that you owe around $ 1,000 or more by the end of the month if you know damn well a tax refund is due.
It is a special type of torture in tax season.
For many taxpayers, incorrect assessments and confusing letters from the Internal Revenue Service are just as worrying as waiting months for a tax refund.
I hear from taxpayers who filed an application in February and early March after losing their jobs during the economic aftermath of the 2020 pandemic. At the start of the tax season they would have owed taxes as all of their unemployment benefits would count as taxable income that time.
Taxpayers filed ahead of a major change in tax rules but waited to pay – as allowed until the May 17 deadline expired this season.
And then came the American rescue plan, which went into effect on March 11th. The rules changed in their favor. Suddenly they no longer owed any money, but they would get a tax refund now. And no, they didn’t send a check by May 17th.
Anyway, the IRS sent them automated notifications in early July to collect the number that was listed on the original tax return.
It’s a crazy journey that once again shows how taxpayers can expect all sorts of weird twists and turns over the course of the 2020 tax season as the 2020 tax season drags into summer.
What’s even stranger, an Ohio taxpayer reported receiving the debt collection notice one week in July and then, more shockingly, actually receiving the unemployment refund he owed the next week.
Talk about your head – and probably your stomach – spinning.
According to the latest news from the IRS, nearly 4 million taxpayers should receive unemployment-related reimbursements by mid-July. These are taxpayers who overpaid their unemployment benefit taxes in the last year before tax rules changed again.
Direct deposits should begin Wednesday and paper check refunds should begin on Friday. Other refund money was issued earlier.
However, all who qualify have not yet received their money. These refunds will be issued throughout the summer, according to the IRS.
Why You Should Read a CP14 Notice
The initial collection correspondence for unpaid taxes is known as a “CP14 Notice”.
Jan Lewis, a member of the American Institute of CPAs’ tax committee, said that every time you file a state income tax return with a balance due – and you fail to pay it on time – the IRS will send you an automatic reminder.
What is unusual now is that some taxpayers did not transfer the money owed by May 17th because they knew that the tax law changed in March and that they are entitled to a refund.
While they could do so and it makes sense not to send a loan to the IRS, it appears that for some it triggered this CP14 notice.
Others, of course, deposited their payments in February or March when they filed earlier in tax season, and they waited for months to get their money back.
“I never want to tell a taxpayer to ignore a notice from the IRS,” said Lewis.
Still, she said, after receiving this initial notice, some taxpayers shouldn’t panic in this situation as the IRS is processing tax returns filed prior to the amendment to the Unemployment Compensation Tax Act. A second clue on the road, however, could be more disturbing.
If you have not yet received your refund, Lewis does not recommend sending another paper return or an altered paper return in an attempt to respond to such communications.
She said she has no doubt that the situation will ultimately be resolved. She said additional notifications would be sent before the matter was turned over to the IRS debt collection agencies.
According to IRS information online, taxpayers should carefully read a CP14 notice, pay the amount owed by the due date on the notice, and establish a payment schedule if they cannot pay the full amount they owe. Or taxpayers must turn to the IRS if they disagree.
Many people, as you can imagine, disagree.
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Sue Martin of Waterford said she had two customers who wanted to know what was going on when they received the CP14 notice a week ago.
Both were waiting for their tax refunds from the federal government – and they no longer owed taxes after the pandemic-related tax relief changes came into effect in March.
Martin speculated that the letters were sent automatically, ignoring the fact that the IRS is still processing millions of 2020 declarations and making adjustments related to the tax changes.
The IRS did not respond to questions about why the CP14 letters were mailed to those who were owed a refund or what people in this situation should do next when they receive a letter. The IRS said Thursday morning that it looked into the complaints and found nothing spread.
“We have studied the problem carefully and it is not systemic,” said Luis Garcia, an IRS spokesman in Detroit.
The American Rescue Plan Act of 2021 excluded unemployment benefits of up to $ 10,200 from taxable income in 2020. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $ 150,000.
The confusing part is that the IRS told taxpayers not to amend their tax returns in most cases when it came to unemployment benefits.
However, an amended declaration would be required if the taxpayer suddenly became entitled to the income tax credit or other important credits due to a lower total taxable income.
More: For some, the lack of money to reimburse unemployment insurance appears
More: Check your bank account for reimbursements of unemployment benefits, child tax credit
Some returns did not need to be changed; others have
The IRS also did not want revised statements to reflect the changes related to the repayment of the prepayment tax credit for health insurance that was suspended under the US rescue plan.
The IRS said it would reimburse taxpayers who filed ahead of schedule for the excess prepayment tax credit on their 2020 tax returns.
The break applies to those who have bought insurance coverage in the health insurance market.
Now, however, many taxpayers feel they are getting mixed messages.
Martin, who volunteers to prepare taxes under programs that provide free tax assistance to the qualified, said one of her clients was later asked to electronically file an amended declaration after calling about the CP14 notice to try that Solve a problem.
Another customer tried to correct the problem by calling the IRS but couldn’t get through on Monday and planned to try again.
“I’m not blaming the IRS staff for this,” said Martin. “I know that they are overwhelmed and underfunded.”
Troubling problems continue
Edward Karl, vice president of taxation for the American Institute of CPAs, wrote on a recent blog that many tax professionals struggle with unnecessary disclosures. Some, he wrote, said they “felt that the IRS is not on track to become a modern, evolutionary and respected federal agency”.
In some cases, CPAs have reported having had an experience where the IRS failed to read and respond to correspondence sent to the agency. Instead, the IRS kept sending “increasingly stringent notices to taxpayers”.
James O’Rilley, CPA and tax director of Doeren Mayhew in Troy, said days dealing with the IRS could be “a complete mess”.
Many times, he said, correspondence is not opened or is lost. Sometimes, he said, the correspondence has been sent by registered mail and the IRS still can’t find it.
“We worked with – if you can call it that – an IRS agent on an audit and were told it would be difficult to reach because they were in a remote location with poor cellular and internet connectivity,” O said ‘Rilley.
And he stated, “We have seen collection letters for matters that do not deserve collection notice.”
He said in some cases the IRS should automatically amend the tax return, but the notice required the taxpayer to “prove” that no payment is due.
“Unfortunately,” said O’Rilley, “calling the IRS results in little to no help.”
What if you receive a letter? Don’t ignore it. You may have to try calling the IRS a few times as the phone lines are notoriously busy. Get the name and ID number of the IRS agent you are speaking to and write down the time and date of the call.
O’Rilley said those who received the letters – who are entitled to a refund – should send a letter to the IRS indicating that the taxpayer is waiting for their tax return to be “revised” to exclude unemployment benefit leading to a refund .
“It may also require a call to the IRS to stop further collections activity,” he said.
On the other hand, maybe check your bank account or mailbox and see if you just got the refund you were expecting all along.
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