Making Additional Work for Yourself and Others

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The way the IRS is processing paper returns filed in 2021 is adding significant complexity, cost and time for itself and for taxpayers. This post highlights the problems created for the clients of one preparer, which provide a lesson for everyone trying to get a paper return processed.  In each of the cases discussed below, the taxpayer timely filed a paper return with the IRS and included a check with the return.  The IRS quickly extracted the check from the envelope but failed to note on its system that the check was submitted with a return. 

Instead, it subsequently questioned the taxpayer about why the taxpayer had not filed a return, leading to confusion and unnecessary time spent simply because the IRS did not note the receipt of the return at the time of opening the envelope and did not timely process the return thereafter.  If the IRS would note the receipt of the return at the time of extracting the check from the envelope containing the return and the check, it would seem that it could save itself, and the taxpayer, some trouble.  I have not spoken with anyone at the IRS to explain to me why what has happened here occurred.  Perhaps there is a good explanation and we welcome comments that could shed light on this process. 

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Here is a link to the CP80 that a 94-year-old taxpayer received. The IRS notice is only a single page, and instructs the taxpayer that if they have already filed their return, they should send a copy with an original signature to the address on the notice.   Following this instruction causes the taxpayer (and presumably the preparer) to duplicate work and will cause the IRS more work since it now has two returns to process.  The taxpayer made a $5,607 payment with the return, which was mailed to the correct Cincinnati address with the 1040-V voucher.   The return was filed in late February 2021.  

The taxpayer receiving the CP80 is the seventh taxpayer of one preparer to receive such a notice – the other five had also filed their returns with a payment and voucher.  And all six of them were concerned that this was a hoax since each of them knew that their returns had been filed and the payment submitted with the return.  The preparer was suspicious also, until receiving the third client call in one afternoon and realizing that the problem was one of processing by the IRS.  

Three of the notices were sent with an Austin return address, and three with a Kansas City return address.  There is no street address, just the four-digit ZIP Code extension, –0025 in both cases.  Note that there is no return envelope provided, I suppose because returns could be bulky, and no “clip the bottom third of this page to use as a mailing label.”

IRS has a transaction code — 610 — for “payment with return.”  If the IRS is adding that code as it processes the payment, it seems inexplicable that it would send out a notice to someone questioning whether they had filed a return.  How hard would it be, to suppress notices that say “we don’t have your return,” to people who made a payment with a return?

This all goes back to when IRS decided to outsource payment processing to private lockboxes.  It reduced Service Center staffing, but probably cost money in the long run.  The mail is now opened, the check and 1040-V payment voucher processed, and the return is then forwarded to a Service Center, sometimes hundreds of miles away.  It seems that the process of extracting the check does not involve notating the receipt of a return.

The taxpayers referenced in this post filed their paper return with the 1040-V payment voucher and a check, mailing it as required to an address in Cincinnati.  The IRS followed its normal procedure, cashing the check and then sending the return to the pile of “full paid” returns, to process when all of the refund and balance-due returns have been worked. The IRS says there are still 6.3 million returns left to be processed – and the language implies that these returns all have errors or require special handling, like verifying recovery rebate credits. The tax preparer asserts that these issues are not involved with most of the returns here.  Several of them have only a Schedule B attached.  Most don’t even have a 1099-R showing withholding.  Four of these returns were filed in February; the other two, by mid-March.    

The IRS notice instructs the taxpayer to send a copy of their return with an original signature to the address on the notice.  So that’s what the preparer is doing.  This not only creates more work for the preparer, and anxiety for the clients, but more work for IRS when they get around to processing the full paid returns.  Indeed, the IRS operational status website says, “Please don’t file a second tax return or contact the IRS about the status of your return.”  Unfortunately for everyone involved here, most tax professionals are deeply uncomfortable with ignoring an IRS letter. The CYA principle is a strong thumb on the scale that would lead most professionals to send the requested response, even knowing that it’s almost certainly unnecessary and will cause their client further delays and correspondence.

In pre-Covid days, IRS programmed its computers to send a notice to anyone with a credit on their account if the return had not been processed by late December.  They must have suppressed such notices in December of 2020 because I know they were still processing returns well into the new year.  But this year, someone forgot, someone had retired or someone did not think through what was happening. If the 2022 filing season is anything like 2021, the IRS may want to suppress next year’s CP80 notices in advance.  If it intends to continue the process of requesting duplicate returns despite the language on its website and despite the extra work it causes everyone, perhaps it could explain the reasons for creating this additional work so that practitioners can explain it to their clients who must pay for additional practitioner services because of the IRS practice or rely on the practitioner to eat the additional time because of the practice.

Comments

  1. Raymond Cohen says

    The IRS is creating more work for itself when it sends a refund with no explanation. In one case, the refund was due to the non-taxability of unemployment. By omitting an explanation, it creates more work for the IRS and the accountant.

  2. Robert Kantowitz says

    The problem is that there is bureaucracy (so it is hard to find out who is responsible), no incentive to get things right (not all that many government functionaries will reach out beyond their narrow responsibilities to solve a problem) and apparently little or no accountability. In most private settings, this would have been resolved and the individuals responsible likely fired, and if the amount were large enough and a private party were acting unreasonably, the aggrieved party could get the courts to intervene. (Think, for example, of a home purchase where the seller’s mortgage lender, which was paid off at closing, did not process a lien release.)

  3. Anthony Rodriguez says

    Payments received are coded according to whatever document or paperwork they are received with. Payment with return is a 610. A 610 payment is processed (cashed) and the return with it may be processed at a later time (original receipt date kept) or lost. If IRS claims no return was received, a transcript can be requested and the 610 code can be argued as date of original filing of a return.
    Payment with an ES Voucher (1040-V) is coded as 660. Payment is processed and awaiting filing of original return. Estimated taxpayers will usually have 3 of the 660 payments on their account and a 610 with their original filed tax return.
    So what happens if TP sends in an original return with an ES Voucher (1040V)? The payment should be coded as a 610, the presence of a 1040 tax return takes precedence over the 1040-V. If an employee puts in the 660 code and the original return is subsequently lost, it all goes downhill from there. It can be put right but that will take time.
    It all comes down to employee training!

  4. Steven M. Harris says

    From actual personal experience. For both 2019 (Taxpayer Advocate required to correct) and 2020 (still unprocessed, no contact) tax returns. Check with Form 1040 received in Charlotte. Check is processed there and return is sent to Austin for processing. Letter received inquiring why payments but no return filed, from San Jose. Fraud service center personnel at Austin get Form 1040 to review and hold up processing thinking it is part of some refund scheme.

  5. Mordecai Cohen says

    The only solution at this point is to get the National Taxpayer Advocate involved. The advocate’s websites accepts comments about systemic problems with-in the IRS. I have used it and they have actually responded that the issue is being addressed. At this time of year with a minimal amount of new return being received may they can intervene on everyone’s behalf.

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