The pandemic caused major shutdowns across the country and the IRS was not spared. This resulted in a processing backlog for many items that were mailed to the IRS. At the end of June, the IRS had approximately 11 million pieces of unopened mail. Sunita Lough, IRS deputy commissioner for services and enforcement, reported at that time that the IRS continues to receive 1 million new mail pieces per day, while opening 5 million mail pieces per week. The backlog has created a problem for taxpayers (particularly trusts) that have mailed payments that have not yet been processed by the IRS. Presently, many taxpayers are receiving IRS letters about payment discrepancies concerning these uncashed checks. If you received one of these letters, you are not alone. In any event, a proper response to one of these letters must be prepared.
Steps to Deal with IRS Notices
When automated notices are delivered to taxpayers, informing them that payments have not been received, the resulting disconnect is confusing and places taxpayers in a difficult bind. So what is a taxpayer to do if they receive one of these notices?
First, a taxpayer should not ignore a letter from the IRS. The letters typically begin with a “balance due” notice, followed later by a statutory notice of deficiency (stat notice). Never ignore a stat notice. The IRS can begin the collection process even though the payment is sitting at an IRS office waiting to be opened. This collection process will generally begin with letters, but can progress to calls from live collections agents who attempt to collect the “amount due.” If the letters are ignored and the collections agent is unable to make contact, the IRS can move on to:
- Filing a Notice of Federal Tax Lien;
- Serving a Notice of Levy; and
- Offsetting a refund to which the taxpayer is entitled.
Having established that ignoring the letter is a bad idea, what options are available? The starting point is relatively simple. Find and prepare your documentation that the payment was sent. This should include a copy of the certified mail receipt (if available), a copy of a checkbook receipt, or other documentation (a note, memo, or letter) showing that the check was issued, and a copy of any relevant bank statements that show that the check was not cashed. Taxpayers should also notify their tax professional of the letter so that tax professionals can assist in this process and prepare the responses that may become necessary.
The next step is to contact the IRS. The IRS, due to high call volume, recommends “waiting to contact the agency about any unprocessed paper payments still pending.” However, this is likely not a good choice, given the previously described progression of notices to collections efforts. The better option is to find the contact number printed in the upper right hand corner of the letter and call it (or request assistance from your tax professional who can do this for you). Live correspondence with an IRS representative about the mail delay may successfully result in a “hold” on your account. This places a temporary stop, typically 30 days, on automatic collection activities. Depending on the status of the mail backlog at the end of the hold period, a subsequent call and additional hold request may be necessary.
A balance due notice or a stat notice is not the only type of letter that the IRS might send. As the IRS returns to normal operations, correspondence about adjustments that could result in tax decreases or increases may also be delivered. These letters should also be addressed immediately.
For further assistance with IRS correspondence, including letters that many are receiving about uncashed checks, please contact your local CBIZ tax professional.
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