September 28, 2023 – The IRS Nationwide Tax Forum was back in-person and in full swing this summer after three years of going virtual during the pandemic. At each of the five tax forums held across the country, I had the honor of  hosting a series of town hall events where I heard directly from tax professionals about the issues that give them, and the taxpayers they represent, heartburn.

As the National Taxpayer Advocate, one of my roles (and the role of the Taxpayer Advocate Service (TAS)) is to serve as the “voice of the taxpayer” within the IRS. As I often say, “I can’t be a voice unless I listen.” Throughout the summer, I heard many similar problems tax professionals are experiencing from one coast to another.

One of my action plans from those listening sessions is to take what we learned directly to our partners at the IRS to work on finding solutions and encourage additional communications and education to inform practitioners and their clients of pending challenges. We also want to empower our tax practitioner partners with information that may help them navigate the problem areas that bubbled up during our town hall conversations. In this blog series, we are breaking down the most typical questions and topics that came up and will provide resources to help other taxpayers and tax professionals experiencing similar roadblocks.

For Those that Joined Me: Thank You for Attending and Participating in the NTA Town Hall Series

Before I dive into the questions, I want to thank  the tax professionals who participated in the town halls, asked great questions, and shared their experiences working with our local taxpayer advocate offices. None of us at TAS or the IRS could do our jobs without tax professionals, and our tax industry stakeholders. They are our eyes and ears on the ground, and their first-hand experiences are invaluable to help me, TAS, and the IRS better serve our taxpayers. So, thank you for bringing the hard questions, sharing your time, and for everything you do to support our tax system. And a shout out for those that shared examples of our local TAS employees’ successful efforts in resolving issues for their clients.

Because so many important issues were raised during the town halls, we will address them in a two-part blog. Here, in Part One, we are covering the top pandemic-related questions and issues that tax professionals and their clients are still having trouble navigating. In Part Two, we will dive deeper into questions regarding tax return preparation and processing, address concerns about some IRS forms, notices, and letters, and provide helpful resources.
Pandemic-Related Questions

Employee Retention Credit

Not surprisingly there was a lot of discussion at the tax forums concerning the Employee Retention Credit (ERC). The ERC is a pandemic-era refundable tax credit intended to help businesses and tax-exempt organizations that continued to pay employees during the COVID-19 shutdown, or businesses that had significant declines in gross receipts.  Additionally, employers may be eligible for the ERC if they opened a qualified recovery startup business.  To add additional complexity, eligibility requirements are different, depending on which periods in 2020 or 2021 for which the ERC is being claimed.

Sadly, this credit has become the focus of aggressive marketers and scammers who promise employers payouts of the credit based on inaccurate eligibility requirements and computation of the credit. At the tax forums we heard from tax professionals who were concerned about the flood of predatory advertisements and were looking for guidance on how to protect their clients from falling victim to an ERC scam.

In response to the surge of questionable claims, the IRS announced on Sept. 14, a moratorium on processing any new ERC claims until at least the end of this year. This action is intended to protect honest small business owners and give the IRS time to review existing ERC claims for compliance.

Unfortunately, bad actors are negatively impacting processing times and those taxpayers Congress intended to protect are being disadvantaged by the delays in processing their refunds. And for those taxpayers that were taken advantage of and filed eligible claims stay tuned as the IRS will soon be announcing how you can correct your claims.

For the amended returns pending processing before the Sept. 14^th announcement, the IRS will continue to work the ERC claims and pay refunds for  legitimate claims, but processing times will take longer, and the IRS may require additional documentation to ensure the legitimacy of claims.  For more information about the ERC, please read our TAS Tax Tip: Don’t Fall Victim to an Employee Retention Credit Scheme, and review the IRS’s guidance on ERC eligibility, including frequently asked questions, the red flags for ERC claims, and the latest ERC news on IRS.gov.

In the tax industry we often deal with ethical issues. I recognize that many tax professionals faced the possibility of losing clients to do the right thing when it came to overly aggressive ERC claims. I understand the challenge this has been for tax professionals, and I have immense gratitude for all of you who are pushing back, questioning the basis and support for the claim, and doing what is right. You are helping to keep the tide from becoming a storm and in the end protecting our vulnerable taxpayers.

Interest and Penalties Accrued During the Backlog, Statute of Limitations, and When Will Collection Notices Resume

A large percentage of questions during the town hall conversations involved tax professionals with clients who are still impacted from the IRS backlog of processing paper tax returns and correspondence.

Many of the questions concerned erroneous interest and penalties that accrued during the backlog when a taxpayer filed timely or responded to a notice or letter in a timely manner but are still waiting a response from the IRS or a resolution for their tax issue.

The short answer for these situations, is generally taxpayers should be able to get the IRS to remove the interest and penalties, if they timely filed. To prove timeliness, a taxpayer or tax professional can typically show proof of mailing.

Tax professionals with clients improperly assessed interest and penalties should follow these steps to remedy the issue:

• Step 1: Contact the IRS by calling the Practitioner Priority Service line at 866-860-4245.
• Step 2: Show proof of mailing (be sure to keep the originals and send in copies of proof of mailing to the IRS).
• Step 3: If this does not resolve the issue, contact TAS, fill out, and mail or fax Form 911.  

Note: Use this same process for cases where the statute of limitations is a factor. If you have paperwork to establish timely filing, it may not be too late to get a refund or other resolution. If you have provided proof and are still having trouble getting the issue resolved, that is when TAS can intervene and advocate to get resolution on your behalf.

Collections: It is important to understand that typically interest and penalties start to accrue the date the return is due. So even though the IRS suspended sending about a dozen collection notices and letters during the backlog, the fact that a taxpayer was not receiving regular notices from the IRS does not mean that interest and penalties stopped accruing. It is time for the IRS to reinstate issuing notices and provide taxpayers with information on their outstanding balances and provide collection alternatives.

As I explained in my NTA Blog series on collections:

“I was one of the individuals advocating to stop the notices until the IRS addressed the high volume of calls and millions of pieces of unprocessed correspondence. However, a year and a half later, the suspension of those letters and notices is still in place but is expected to come to an end sometime this calendar year.

“My concern is the longer the notices are delayed, the more that taxpayers may have a false sense that the IRS may have forgotten about their tax balance—or maybe taxpayers fail to understand that interest and penalties continue to accrue until final payment. But regardless of a taxpayer’s understanding, the IRS does remember those outstanding balances, and if the balance goes unpaid, interest and applicable penalties continue to accrue.”

In Part One of the series on Notices, I outlined some of the key things to know about outstanding tax balances and urged taxpayers to proactively address any unfiled tax returns and unpaid taxes now rather than waiting for the IRS to contact them.

Helpful Resources for IRS Status Updates and Notices

To get periodic updates on IRS operations and service delays, visit the IRS Operations: Status of Mission-Critical Function page. This resource includes helpful information for tax professionals and taxpayers, such as how long you may have to wait to receive a response from the IRS after answering a letter or notice.

The TAS Taxpayer Roadmap is also a valuable resource to get information about some of the most common notices. All you need to do is enter the notice number in the search field to get an overview of the notice and an explanation of what the notice means for the taxpayer, why the taxpayer received the notice, and any next steps that need to happen.

Taxpayers Who Did Not Receive the Third Stimulus Payment

We heard from many tax professionals across the nation about taxpayers who never received the third-round economic impact payment (EIP), otherwise known as a stimulus payment.

The third-round EIPs were authorized by the American Rescue Plan Act of 2021 and were sent to eligible individuals starting in March of 2021. By December 31, 2021, the IRS issued all third-round EIPs. Some families and individuals may not have received any EIP, or received less than the full amount of EIP, because their circumstances in 2021 were different than they were in 2020.

If you believe a taxpayer should have received a third-round EIP and did not get it or claim it on their 2021 tax return, the first step is to check the eligibility requirements. Eligibility for the third-round EIP varies somewhat from the first two rounds of EIP.

Next, have the taxpayer check their individual IRS online account and look under “Tax Records” to find information regarding EIP. Also check all bank accounts to make sure there were no EIP deposits. After these steps, if the taxpayer did not receive their third payment, they should contact the IRS to try to resolve the issue.

For more information about COVID-19 tax relief visit IRS.gov and see the IRS Fact Sheet, Questions and Answers about the Third-Round Economic Impact Payment.

Conclusion

As I said in my Objectives Report to Congress, “the taxpayer experience vastly improved during the 2023 filing season.” Add that to the funding provided to the IRS by the Inflation Reduction Act, and I am generally optimistic for the future of tax administration. There is light at the end of the tunnel. Maybe not today but going forward, the IRS is going to be a different place in terms of taxpayer service and tax administration as long as they focus and provide proper management and oversight of the funding.

But the IRS still has a long way to go in providing the level of service taxpayers deserve and there are still a lot of taxpayers who need help. One place that taxpayers and practitioners can check for self-help resources is on the TAS website and IRS.gov.  All of us at TAS are here to help taxpayers and tax professionals acting on behalf of their clients. If you are facing a hardship and have not been able to resolve your issues with the IRS through normal channels, or if the system has broken down, that is when TAS can offer meaningful assistance and advocate for you with our IRS partners.

Stay tuned for Part Two, where we will cover topics covering questions related to reporting requirements for Form 1099-K, Payment Card and Third Party Network Transactions, online services, identify theft, and more.

The post NTA Blog: Nationwide Tax Forum FAQs – Part One appeared first on Taxpayer Advocate Service.

Source: taxpayeradvocate.irs.gov