National Taxpayer advocate, Erin Collins, mentioned at a recent virtual seminar last Thursday that Congress may consider her recommendation to pause automated IRS notices. The Taxpayer Advocate Service (TAS) recommended that the IRS provide a six-month pause on collection matters while the taxpayers’ correspondence or amended returns are awaiting to be processed by the IRS. This will grant practitioners a reprieve to resolve ongoing issues with the IRS. Erin Collins states that the standard temporary maximum nine-week collection hold is clearly not enough time for the IRS to resolve tax matters in the current environment of severe backlogs.
Based on the 2021 Taxpayer Advocate Report to Congress, currently, the IRS has a backlog of unprocessed returns in the millions:
- 6.2 million unprocessed individual returns (Form 1040);
- 2.8 million unprocessed business returns (Form 941);
- 2.4 million unprocessed amended individual returns (Form 1040-X);
- 427,000 unprocessed amended business returns (Form 941-X); and
- Approximately 4.75 million pieces of general taxpayer correspondence.
Due to these significant IRS delays in processing taxpayers’ submissions, millions of taxpayers turned to the local taxpayer advocate offices for help. This led to an influx of cases and resulted in staff shortages at TAS. TAS responded to an influx of cases by instituting a policy to not accept cases where the sole issue is a delay in processing an original or amended return. In addition, TAS will not accept a case where the tax return, amended tax return, tentative refund claim or any other submission to the IRS is not showing in the IRS’s system as received. In these situations, taxpayers will need to wait until the IRS posts the tax return as filed, or submission as received, to be able to initiate a taxpayer advocate case.
Erin Collins said that this policy may change soon and TAS will likely start accepting cases involving 2019 amended returns filed before Dec. 31, 2021.
In the current state of crisis at the IRS, taxpayers should be particularly careful in choosing to use overpayments from an earlier tax year to be applied to the subsequent estimated tax payments or tax due in the subsequent tax year. This is especially true when taxpayers are using Form 1040X or 1120X overpayments to pay the following year’s tax due. In many cases, the amended tax returns or the original earlier year tax returns are not timely processed. This causes the subsequent year’s tax to remain due. Once the IRS assesses this tax due liability, it will commence collection actions that include the filing of a notice of federal tax lien or levy actions. For this reason, one option would be to timely pay the current year’s tax liability and not rely on overpayment from the prior tax year. This will prevent the IRS from taking any collection actions against a taxpayer for taxes due in the current tax year.
Taxpayers that are not able to pay the current year’s tax due will be subject to IRS collection actions. Although tax practitioners may be able to place collection holds, such holds do not prevent the IRS from filing a Notice of Federal Tax Lien against a taxpayer’s property in the county where the taxpayer’s property is located. Placing collection holds will also not stop the IRS from making automatic offsets of any tax liabilities due to the IRS in earlier tax years with overpayments due to the taxpayer in any future tax years.
Pausing IRS automated collection notices would be a much-needed relief for taxpayers dealing with painful IRS delays. Meanwhile, if you have any questions about IRS collection procedures and options that taxpayers may have in the current environment, please consult with a Tax Controversy professional.