The IRS will stop mailing three types of notices to taxpayers about their overdue taxes and correct failure-to-deposit penalties on some employer tax credits.
The first announcement, made August 21, comes two days after House Ways and Means Committee Chair Richard E. Neal, D-Mass., wrote to IRS Commissioner Charles Rettig asking that his agency temporarily stop sending taxpayers notices about unpaid tax bills until it has cleared an approximately 12-million-item backlog of correspondence piled up during the coronavirus pandemic shutdown.
“This announcement is a huge win and relief for taxpayers,” Neal said in a statement August 21. “The last thing Americans need in the middle of this pandemic is an unnecessary scare from the IRS regarding tax bills that have already been paid but are stuck in a backlog. The suspension of these notices while the IRS processes its mail will spare taxpayers of needless confusion and worry.”
The second announcement, made the same day, relates to what the IRS called “a small population of employers” that reduced their tax deposits in anticipation of claiming family and sick leave credits or the employee retention tax credit and got a notice of a failure-to-deposit penalty on credits claimed on Form 941, “Employer’s Quarterly Federal Tax Return.” The IRS said employers that received a letter about failure-to-deposit penalties don't need to do anything about the issue until the agency corrects the problem.
The IRS said it has suspended mailing the CP501 notice about money owed from a taxpayer’s tax accounts; the CP503 notice requesting that the taxpayer contact the agency about an unpaid tax bill; and the CP504 notice warning that the taxpayer’s state income tax refund may be seized and applied to an unpaid federal tax debt.
“Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers,” the IRS announcement said.
Late Notice for Some
Neal’s letter to Rettig complained that the IRS had sent two rounds of payment notices to taxpayers that may already have paid their balance, calling it inexcusable and irresponsible.
Keith Fogg of Harvard Law School, on the Procedurally Taxing blog August 21, said, “The notice clearly responds to the concern raised by Congressman Neal.”
However, Fogg noted, the IRS announcement didn’t say whether the agency would stop collection from taxpayers finished with the collection notice stream, whom the IRS can levy. Those taxpayers may already have paid their taxes during the IRS shutdown, he said.
Fogg added that taxpayers in the collections stream may have since overpaid their liability or requested an offer in compromise, innocent spouse relief, or other reprieve, which the IRS won’t know about until it processes the mail. “So, it remains unclear what will happen to these individuals and entities,” he said.
The Treasury Inspector General for Tax Administration said in a June 30 letter to Neal and then-Oversight Subcommittee Chair John Lewis that it would investigate why the IRS sent taxpayers approximately 1.5 million balance-due notices with incorrect deadlines during the evacuation of its offices.