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Delayed Processing of Tax Return Could Be Costly

The Discerning Investor by by Julie Jason
by Julie Jason
The Discerning Investor | January 28th, 2022

If you are among 6 million taxpayers still waiting for your prior year's tax return to be processed, you may be nervous about interest and penalties accruing during the wait.

Reader C.K. described the following problem:

"My husband and I ... [filed] an amended return ... as the IRS decided we had underpaid and owed thousands. ... We sporadically receive written communications from the IRS advising us that they are continuing to add interest to the amount that they say we owe while acknowledging that indeed they have received our amended return and have not yet looked at it."

The question is, should people in C.K.'s situation pay the amount the IRS says in their letters is owed, including interest? Will that stop interest continuing to accrue? What if the amended return proves there is no further tax owed?

For some general insights, I asked attorney Leonard Calbo, a partner with Connecticut-based Smolin, Calbo, Davidson, and Associates LLC, to share his perspective.

While this is not clear from C.K.'s email, Calbo explained that if a taxpayer files a tax return without paying the taxes owed in full, they should take action. "I would recommend they calculate the interest owed on the balance due and send in a check for that amount plus the balance due," explained Calbo. "Otherwise, the interest will keep running and they are at the mercy of when the IRS gets to it." (More details on the IRS and interest can be found at tinyurl.com/ye23y5v8.)

If an amended return is filed, a taxpayer may continue to get letters from the IRS about taxes due. "The problem is the underreported unit doesn't necessarily know whether an amended tax return was filed and will continue to send out notice of the balance due," explained Calbo.

For that reason, the tax adviser for someone in C.K.'s situation might contact the agent listed on the notice to explain that an amended return was filed and received by the IRS.

An IRS spokesperson explained why notices can be sent out even if an amended return is filed: "Technically, the billing notice is valid until we process the amended return. Until the amended return is processed, the original return is all we have."

Is there anything else that can be done? A taxpayer can file Form 9243, Collection Appeal Request, according to Alexander Kotwal, a CPA and tax manager for Marcum LLP, a national accounting and advisory firm headquartered in New York City. Kotwal said it allows a taxpayer "to provide a proposed solution to settle their balance due via the amended return. Filing Form 9243 generally stops the collection process until the issue is settled between the IRS and the taxpayer."

If a taxpayer does owe money based on an amended return, Calbo pointed out that IRS Form 1040-X does not have a line for penalties or interest to be added to the balance that is due: "The IRS says not to include it and they will send you a bill later for any additional penalties or interest the taxpayer may owe."

Calbo's firm calculates "what we think [is] the interest owed and any applicable penalties with the additional tax owed to stop the running of them," and includes that amount with the return. With the IRS estimating that it is taking more than 20 weeks to process amended tax returns, "If you follow their instructions of not including the interest and penalties, you could wind up paying interest for 20 weeks or more. We don't recommend that," Calbo said.

What if you overpay? Calbo said that the taxpayer "will eventually be issued a refund." As the IRS spokesperson noted in last week's column about amended returns, "If a refund is approved, any existing balance due, plus any accumulated penalties and interest, will be wiped out."

It's often said that it pays to be patient, but with the IRS backlog being what it is, consider, together with your tax adviser, the pros and cons of sending in a check. Follow the guidance of your tax adviser; only he or she will be able to direct you, as taxes are unique to each taxpayer's situation.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

life

Is Your Amended Tax Return Still in Limbo?

The Discerning Investor by by Julie Jason
by Julie Jason
The Discerning Investor | January 21st, 2022

If you are among the more than 2 million people who have been waiting since last year for your amended IRS tax return to be processed, you are likely frustrated -- and with good reason.

A reader lamented that she filed an amended return for her 2019 taxes and received an acknowledgment from the IRS of receipt, but is still waiting for a response.

The reader’s letter does not come as a surprise.

National Taxpayer Advocate Erin M. Collins has made note of unprocessed amended tax returns. The role of the national taxpayer advocate is to advocate on behalf of taxpayers and help them resolve issues with the IRS.

In November of 2021, in a blog (tinyurl.com/y5zc8f3h) on the website of the Taxpayer Advocate Service (TAS), Collins wrote: “I have made the difficult decision to suspend accepting cases where the sole issue involves the processing of amended returns until the IRS is able to work through its backlog. ... Under our current procedures, TAS does not accept cases in which we cannot meaningfully expedite or improve case resolution for taxpayers. Amended returns fall into this category.”

According to a post on the IRS website, “As of January 8, 2022, we had 2.3 million unprocessed Forms 1040-X. We are processing these returns in the order received and working hard to get through the inventory. The current timeframe can be more than 20 weeks instead of up to 16.” See the IRS website (tinyurl.com/yckwuuhd) for more information on amended returns.

Why the extended delay? Collins, in her annual report to Congress in January, pointed out some of the challenges for the IRS. While the number of individual taxpayers the IRS serves has increased approximately 19% since 2010, its workforce has shrunk by about 17%. The COVID-19 pandemic also adversely affected IRS operations. However, Collins said that the IRS “performed well under the circumstances.”

Meanwhile, what is the outlook for people awaiting the completed processing of their amended return?

I reached out to an IRS spokesperson, who said, “Our folks are working hard to process returns, both original and amended. If [a taxpayer is] already aware that we’ve received their amended return, our folks will process it, though ... it could be a while.”

The spokesperson said you can monitor the progress of an amended return by checking the “Where’s My Amended Return?” tool at IRS.gov (tinyurl.com/4kdvdzb8). The available information includes when the amended return has been received by the IRS, when an adjustment has been made to a taxpayer’s account (refund, balance due or no tax change), and when the processing has been completed.

In case you’re thinking of calling the IRS, an online FAQ discourages calls -- calling the IRS will not get an amended return processed any faster (tinyurl.com/4xns3pey). The IRS will contact you if more information is needed to process an amended return, according to the FAQ.

If your amended return calls for a refund, “any existing balance due, plus any accumulated penalties and interest, will be wiped out,” according to the IRS spokesperson. Plus, you may earn some interest. “When it takes longer than 45 days to process a refund claim, interest is paid on the refund,” the spokesperson said.

That’s good news -- once an amended return is processed. In the meantime, the waiting continues.

To follow progress, set up an online account on IRS.gov (tinyurl.com/43be4p3h). There you can view the status of filings, make tax payments and access tax records.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

life

Ready to do your taxes?

The Discerning Investor by by Julie Jason
by Julie Jason
The Discerning Investor | January 14th, 2022

The 2022 tax season is officially starting on Jan. 24. That's when the IRS will start accepting and processing tax returns for the 2021 tax year.

If you're expecting smooth sailing, National Taxpayer Advocate Erin M. Collins recently warned of deep concern about the upcoming filing season when she issued her annual report to Congress (tinyurl.com/3r6ztuua). The national taxpayer advocate is the head of the Taxpayer Advocate Service, an independent organization within the IRS that represents taxpayers.

Why the concern? And what can taxpayers do to avoid potential problems?

In late December 2021, the IRS said it still had a backlog of 6 million unprocessed individual returns (Forms 1040) for the year, along with more than 2 million unprocessed amended individual returns.

As many of you wrote to tell me last year, calling the IRS to find out what was going on with your tax returns proved to be frustrating. Last year, according to Collins' report, the IRS received about 282 million phone calls, with customer service representatives answering roughly 11% of them (approximately 32 million calls). Also, for those who were able to reach an IRS representative, the IRS reported that hold times averaged 23 minutes.

Given these struggles, what does a taxpayer need to know this year to hopefully get the best results?

Know the tax deadline: This year, your tax return must be filed by April 18, 2022, due to the Emancipation Day holiday on April 16 in the District of Columbia. Taxpayers in Maine and Massachusetts have an additional day (April 19) for their deadline, due to the Patriots' Day holiday April 18. (However, you may file to request an extension to Oct. 17, 2022.)

Check your mail: Those who received advance Child Tax Credit (ACTC) payments or an Economic Impact Payment (EIP) in 2021 will want to watch for letters from the IRS containing information that can help prevent delays. Letter 6419 is for the ACTC, while Letter 6475 is for the EIP. You can also check online for information about your ACTC payments (tinyurl.com/3865zf2k) and your EIP payment (tinyurl.com/43be4p3h).

How important is it to have the right numbers? Collins' report noted that the Recovery Rebate Credit (RRC), which was used to claim missing EIPs on tax returns, led the IRS to issue more than 11 million math error notices in 2021 due to discrepancies over RRC figures when compared with IRS records.

Choose electronic filing: IRS Commissioner Chuck Rettig, in announcing the opening of tax filing season, said: "The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don't face processing delays. Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year."

To file electronically, you can access the IRS's Free File program as of Jan. 14. It provides online tax preparation at no charge through a public-private partnership. According to the IRS, Free File can be used by any person or family who had an adjusted gross income of $73,000 or less in 2021. (Returns using Free File before Jan. 24 will be officially "filed" on Jan. 24. More details can be found at tinyurl.com/5ysyvhkc.)

The IRS said it anticipated that most taxpayers this year "will receive their refund within 21 days of when they file electronically if they choose direct deposit and there are no issues with their tax return." More than 160 million individual tax returns for the 2021 tax year are expected to be filed, according to the IRS.

To see the problems encountered by taxpayers last year, take the time to read Collins' list of the 10 most serious problems at tinyurl.com/3s7vmyvd. The National Taxpayer Advocate 2022 Purple Book, which offers 68 legislative recommendations to "strengthen taxpayer rights and improve tax administration," is at tinyurl.com/53k3xwpj.

While IRS processing is not in your control, how you prepare your tax return is.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

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