Tag Archives: what do do when you receive an IRS letter

IRS, Tips

IRS Sent 8955-SSA Penalty Notices In Error

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We received a few frantic calls and emails in the past month from clients who opened their mail to find a penalty notice from the IRS for their 2022 Form 8955-SSA — some for tens of thousands of dollars.

As background, Form 8955-SSA, also known as the “Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits,” is an report that retirement plan sponsors (the entity that established the plan for a company and its employees — usually the employer itself, or a union) must file with the IRS to report information about certain participants (typically former employees) who have vested benefits that have been deferred according to the plan. It’s a required annual filing with the IRS for those who file Form 5500 and has the same filing deadline (July 31, 2023 for 2022 plans — October 15, 2023 on extension).

But most businesses contract this work out to a plan administrator, a service provider that has expertise in managing 401k plans. So you can only imagine how terrifying it must have been for a bunch of business owners to get these notices — meaning that presumably, their trusted outsourcing agency was not doing their job. (Or… let’s be honest — more likely, very few of the small businesses had any clue what the notice was for, apart from the fact that a-it was from the IRS, b-said they’d done something wrong, and c-they owed money. Scary stuff.)

Thankfully, it turns out that these notices were the result of an IRS glitch in the program that receives and processes these forms. The IRS acknowledged the error, fixed the issue, and updated its records to “reflect the accurate filing status of the affected plan sponsors”.

The IRS believes the problem originated with organizations using the Department of Labor’s EFAST2 system to file their Form 8500 Annual Return/Report of Employee Benefit Plan before the July 31 deadline, rather than electronically through the IRS’s Filing Information Returns Electronically (FIRE) system.

If you received a CP 283-C penalty notice dated before September 1, 2023, and you are sure that you filed your 2022 Form 8955-SSA on time and completely, you do not need to take any action. You can ignore the notice and rest assured that your filing is in good order. The IRS will not impose any penalties or interest on your account.

However, if you want to verify your filing status, you have a couple options.
1) First off, contact your plan administrator or service provider for confirmation of your filing.
2) You can also request a transcript of your filing from the IRS to double-check the assurance of your provider.

The IRS released a bulletin addressing the mistake and asked readers to contact them at 877-829-5500 with any questions.

At retirement age, the Social Security Administration informs affected individuals that they may be eligible for benefits under previous employers’ retirement plans based on information reported to the IRS on Form 8955-A, explained Allison Wielobob, Chief Legal Officer of the American Retirement Association, so it’s essential that this information is filed accurately and timely.

Take a deep breath. We all make mistakes. Even the IRS.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

COVID-19 Financial Relief, IRS, Tips

IRS Service Issues – What Is Being Done? How Can You Help?

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On last week’s AICPA Town Hall they discussed the IRS service issues I posted about recently, as well as the advocacy efforts by the newly-formed Tax Professionals United for Taxpayer Relief Coalition — including the AICPA, NATP, and many other organizations. (Check out their recent media briefing here.)

They were effective in getting a bi-partisan group of nearly 200 members of Congress to send a letter to the US Treasury Secretary requesting the IRS implement the following:

  • Halt automated collections from now until at least 90 days after April 18, 2022;
  • Delay the collection process for filers until any active and pending penalty abatement requests have been processed;
  • Streamline the reasonable cause penalty abatement process for taxpayers impacted by the COVID-19 pandemic without the need for written correspondence;
  • Provide targeted tax penalty relief for taxpayers who paid at least 70 percent of the tax due for the 2020 and 2021 tax year; and
  • Expedite processing of amended returns and provide TAS and congressional caseworkers with timely responses.”

Shortly afterwards, the IRS announced they are suspending a small portion of automated notices — which they clarified on February 9 as “notices of unfiled returns and unpaid balances generally, including a final notice of an outstanding balance and intent to levy”.

The IRS identified the suspended letters and notices as:

  • CP80, notice of an unfiled tax return. The IRS sends this when it has credited payments or other credits to the taxpayer’s account but has not received a tax return for the tax period.
  • CP59, unfiled tax return, first notice. The IRS sends this when it has no record of a prior-year return’s having been filed. The Spanish-language version, CP759, is included.
  • CP516, unfiled tax return, second notice. This is a request for information on a delinquent return for which there is no record of filing. The Spanish-language version, CP616, is included.
  • CP518, final notice — return delinquency. The Spanish-language version, CP618, is included.
  • CP501, balance due, first notice. This letter is a reminder of an outstanding balance on the taxpayer’s accounts.
  • CP503, balance due, second notice.
  • CP504 balance due, third and final notice. This also is a notice of intent to levy.
  • 2802C, withholding compliance letter. This letter notifies taxpayers whom the IRS has identified as having underwithheld taxes from their wages, with instructions on correcting their withholding amount.
  • CP259, business return delinquency. The IRS has no record of a prior-year return’s having been filed. The Spanish-language version, CP959, is included.
  • CP518, final notice of a business return delinquency. The Spanish-language version, CP618, is included.

Per the Journal of Accountancy: “How long the letters and notices will be suspended or at what point the backlog can be considered sufficiently cleared to resume them remains unclear. The news release Feb. 9 said the IRS “will continue to assess the inventory of prior year returns to determine the appropriate time” to start sending them again. And there has been no mention of relieving taxpayers from their obligation to file returns or pay taxes that are the subject of the letters and notices, if those returns and taxes are indeed unfiled and unpaid.”

While this is a welcome step, it falls seriously short of what is needed.

In a recent Op Ed, former National Taxpayer Advocate Nina Olson outlined her suggestions to “fix the IRS”, and the AICPA Journal of Accountancy podcast elaborates on the following four recommendations:

  1. Discontinue automated compliance actions until the IRS is prepared to devote the necessary resources for a timely resolution
  2. Align requests for account holds with the time it takes the IRS to process any penalty abatement requests
  3. Offer a reasonable cause penalty waiver, similar to the procedures of first-time abatement administrative waiver
  4. Provide taxpayers with targeted relief from the underpayment and the late payment penalty for the 2020 and 2021 tax year

The podcast (highly-recommended short listen!) walks through these one-by-one and explains why each is crucial — in a very straightforward manner, providing examples of what kind of struggles real-life taxpayers and their advisors are going through.

A key takeaway: “What we’re trying to do with these recommendations is to lessen the need to reach out to the IRS. In theory, if we’re having to call the IRS less then the IRS will be able to get to people who have other types of problems and get those problems resolved.”

The Washington Post shared an article today highlighting the severity of the IRS backlog and what it means for this tax season.

In testimony before the House Ways and Means Committee on Tuesday, National Taxpayer Advocate Erin Collins noted that as of late December, the IRS had a backlog of 6 million unprocessed individual returns and 2.3 million unprocessed amended individual returns. In addition, more than 2 million Forms 941, Employer’s Quarterly Federal Tax Return, and its amended version remained unprocessed. Many of the latter included claims of the employer retention credit emergency pandemic relief provision.

But all this isn’t enough — they need to hear actual stories from real taxpayers about what you’ve gone through. If you had a challenge with the IRS in the past couple years, and especially if you have an ongoing issue, please contact your Senators and Representatives to tell your personal story. This generally moves them to action, and what we need now is continued and increased pressure on the IRS to make short-term immediate changes that will affect the here-and-now of this tax season.

RESOURCES:
Find your rep: https://www.house.gov/representatives/find-your-representative
Members of Congress Twitter handles: https://twitter.com/i/lists/34179516/members
IRS Social Media: @IRS

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

COVID-19 Financial Relief, IRS

IRS Backlog Leads To AICPA Campaign For Penalty Relief

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According to a report by the Treasury Inspector General for Tax Administration, the Covid pandemic caused a backlog of almost 8 million paper-filed business tax returns at the end of 2020. The IRS continues to have difficulty hiring enough staff to continue processing tax-year 2020 returns — the agency had only met 63% of its recruitment goal for processing operations as of July, NBC reports.

In today’s AICPA Town Hall — a special edition focused on tax issues — Melanie Lauridsen, Senior Manager of Tax Policy & Advocacy, drove home the point of how the inability of the IRS to fully process this backlog, answer the phones, or handle incoming snail mail in a timely manner is affecting taxpayers and their preparers. A case in point was the answer-rate of the phone lines — they are overwhelmed with substantially more calls than in the past, and only able to answer 2-8% of calls.

This has motivated the AICPA to introduce penalty relief recommendations to Congressional leaders. Underpayment and late penalty relief for 2020, as well as holding off on compliance adjustments and issuing account holds until all snail mail is processed and payments by check can be applied to accounts, would significantly reduce the number of calls to the IRS to resolve these issues (many of which are only a matter of correspondence crossing in the mail). By reducing the number of calls, we would be helping the IRS increase the rate at which they can answer existing calls.

In the meantime, you can check on the IRS status of operations in specific areas via this link — IRS Operations During COVID-19: Mission-critical functions continue | Internal Revenue Service — if you need to contact the IRS, try right at 7 am or shortly before 7 pm; and if after repeated attempts you have no luck, try contacting your local Taxpayer Advocate:
Local Taxpayer Advocate | Internal Revenue Service (irs.gov)

If you’re having challenges and want to help raise awareness to the situation at the IRS and promote penalty relief as one part of the solution, you can go to social media and:
• Share stories of pandemic-related hardships
• Tag members of Congress, media and gov’t officials on social media posts
• Include hashtag #COVIDPenaltyRelief in all social media posts
• Tag AICPA on your posts:
– Twitter: @AICPA
– Facebook: @AICPA
– LinkedIn: @AICPA
– Instagram: @theaicpa
• Find your rep: https://www.house.gov/representatives/find-your-representative
Members of Congress Twitter handles: https://twitter.com/i/lists/34179516/members
IRS Social Media: @IRS
• Share story or template post:
The pandemic has caused a lot of personal and economic suffering in our country. Taxpayers need relief from tax penalties now – we ask the @IRS to grant penalty relief. #COVIDPenaltyRelief @AICPA @[mediaoutlet] @[member of Congress

Thank you in advance for helping raise awareness to a situation that is causing serious hardship for many thousands of Americans.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

IRS, Tips

IRS Sending Overdue Notices For Checks Sitting In Its Unopened Mail

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A new notice appeared on the IRS website late on August 13th:

Pending Check Payments and Payment Notices: If a taxpayer mailed a check (either with or without a tax return), it may still be unopened in the backlog of mail the IRS is processing due to COVID-19. Any payments will be posted as the date we received them rather than the date the agency processed them. To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them. To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing. However, interest and penalties may still apply. Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending.

Claudia Hill, EA (always one of my favorite speakers at the annual IRS Tax Forum), wrote an excellent and somewhat scathing article in Forbes regarding the current disaster we as CPAs are dealing with on behalf of our clients — the IRS is many months behind in opening its mail, yet their automated system for sending out scary letters to taxpayers for unpaid taxes is back up-and-running.

Reports Claudia, having spoken to a “a hard-working, somewhat overwhelmed IRS customer service representative”:

… while IRS automated computer billings had resumed, any mail received at the Service Center between March 13 and June 30 was likely still unopened in the rooms of boxes containing mail that had arrived during the Covid-related shut-down. This included tax returns and payments directed to Service Center addresses. The Service Centers received about a million pieces of mail per week during that time. No one was there to open it.

IRS billing process is consistent; it is machine programmed. After the first letter goes out, approximately four weeks later if no money is deemed received, a second notice goes out. Each letter becomes sterner. By the third letter, IRS is reminding taxpayers of their rights to lien, levy and seize in the event of non-payment.

As she rightly points out, ignoring IRS notices can lead to serious problems — because their system is automated, a human being must intervene in order to (as I’ve always described it to clients) throw a cog in the wheel to stop it from churning.

The problem is exacerbated by the fact that these days, getting an IRS representative on the phone is rather difficult. If you are in this situation, I recommend calling the phone number on your notice during non-peak hours (7-10 am & 6-7 pm), Tue-Thu (if you do not have a number on your notice — the main one is 1-800-829-1040). Be ready to turn on your phone’s speaker and keep yourself busy with a project in the meantime. Or, as was recommended by John Sheeley, EA in his weekly tax update class yesterday, use an app that waits on hold for you and calls you back when a rep comes on the line.

Claudia offers these suggestions for the call:
1) Get your documentation ready:
– copy of the certified mail receipt
– copy of your checkbook showing you wrote the check
– copy of your bank statement showing it has not been cashed
2) If you are told about the mail delay, ask them to place a “stay-up” on your account for as long as they believe it will take to open the mail and process millions of pieces of correspondence and checks.

And good luck!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

IRS, Tips

IRS Suddenly Delivering Thousands Of Late Letters — Extends Due Dates on Balances

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Due to office closures, the IRS wasn’t able to mail out letters to taxpayers. The overdue notices are being delivered to taxpayers now — and confusing us all to no end. The IRS says the due dates printed on the notices have been extended.

I received a few panicked texts and chats from clients and colleagues this week, as a result of the receipt of IRS letters with dates such as April 6th and May 4th (mind you, today’s June 16th — making these letters 1.5-2.5 months late).

As it turns out, the IRS wasn’t able to mail out the pre-printed letters to taxpayers due to office closures during the ongoing COVID-19 pandemic. Apparently, given the amount of time it would take to reprogram IRS systems and generate newly-updated notices, “some of the notices that taxpayers will receive show due dates that have already passed.” They claim that each notice will come with an insert confirming that the due dates printed on the notices have been extended.

However, this was not the experience we had — in the first case I encountered, no insert was received, and not only had the due date passed… but the letter-date itself was more than two months’ passed; and in the intervening months, a refund check had arrived, with no explanation. The amount they were claiming was due in the most recent back-dated letter had a) since been paid, then b) found erroneous and then c) refunded. Imagine my client’s confusion.

Normally I’m a huge fan of the IRS — inasmuch as I recognize how overworked and underfunded they are. But there’s no way to view this other than a major clusterfest.

And my clients and colleagues aren’t the only ones freaking out. Basically what happened was that since the IRS was shut down for a while due to the COVID-19 pandemic, letters weren’t going out — so when they reopened, ALL these late letters went out. This was apparently the week for it — loads of people are getting letters all-of-a-sudden, with no reference to any activity since then. Furthermore, a lot of people are getting “late payment” letters for various taxes that were due 4/15, because they didn’t change their system internally to reflect the new due date of 7/15. According to Accounting Today, the IRS said Monday that these notices will be delivered to taxpayers in the next few weeks, so expect a lot of scared, confused taxpayers.

Solutions? Well, if this is due to personal income taxes, you can go to the IRS website and check to see if you have a current balance due; but to my knowledge they do not have a similar system for payroll taxes, unfortunately. In this case you could try to call the IRS, but they’re still not entirely ramped up yet, so the hold time could be interminable. In case you want to give it a try (especially if you’re concerned about penalties or interest), then the number for business services is 800-829-4933.

This is, by the way, CRAY-CRAY. I’m 48 years old and have never seen anything like this.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.