Last summer the National Taxpayer Advocate reported that the IRS was sending out millions of notices to taxpayers with dates that bore no relationship to the date of actual mailing. I wrote a post about it here criticizing the decision to send out these notices, not only because they would confuse many recipients but also because the IRS database shows the date of the notice generation rather than the date of mailing. I updated the information in an October post after gaining more information. This type of broad based improper recordkeeping will have the effect of casting doubt on the accuracy of IRS records that could have lasting impact for the IRS when it tries to prove some event occurs and relies on a certified transcript.
In the last section of the post I will mention a disturbing recent interaction with the IRS regarding the collection statute of limitations and request anyone with a similar interaction to provide comments.
The original batch of wrongly dated notices resulted from the closure of the IRS Service Centers due to the pandemic. As bad as sending out the wrongly dated notices is for taxpayers and for the IRS, at the time the story first broke it appeared to be a once and done as a result of the pandemic lockdown. Last month, the National Taxpayer Advocate issued a second blog describing a second round of misdated or backdated notices the IRS starting sending out this fall and continuing into January. The IRS announced this second round of back dated notices here. So, now we learn that instead of sending out bad notices in one batch because of the shutdown, the problem continues and may occur again in the future creating ongoing confusion for taxpayers and an even greater threat to the integrity of the IRS database system.
Extended Dates to Respond to Misdated Notices
If you have not already read the NTA’s second post on this issue you should do so as the issues created by the second round of bad notices are still playing out. The NTA notes that once again the IRS is placing into the envelope with the misdated notice a stuffer providing additional information and additional time. Here are the three types of misdated notices in which a stuffer will be placed:
The notices scheduled to include the Notice 1052-D insert are:
- IRC § 6303 Notice and Demands that informs taxpayers of tax due and demands payment;
- IRC § 7524 Annual Reminder Notices that remind the taxpayer of an existing balance due; or
- IRC § 6213(b) Math Error Notices that inform taxpayers of a change to their return.
The insert provides the taxpayer a new due date, January 29, 2021, to make a payment to avoid additional interest, and additional failure-to-pay penalties, if applicable. The insert also provides taxpayers with math error adjustments until March 9, 2021, to contact the IRS and request the math error be reversed.
The annual reminder notices, while required by statute, do not create the same type of issues as the notice and demand letter or the math error notices. I discussed the consequences of delayed math error notices in my original post on this issue. The stuffer provides the taxpayer with additional time to pay until January 29, 2021, which means that there is additional time before the federal tax lien comes into existence. The stuffer provided in the math error notices give taxpayers until March 9, 2021, to object to the assessment based on math error and trigger the sending of a notice of deficiency (or convince the IRS the original return position was correct.)
The NTA post alerts taxpayers that the notices the IRS sends out in the collection stream may arrive out of order because of the failure to send out the notices timely during November. For individual taxpayers this should not create a significant problem as the second notice in the collection stream is not statutorily required. The result may be different for business taxpayers if they received the notice of intent to levy before receipt of notice and demand.
Prior Misdated Notices
The NTA circles back at the end of her post to talk about the prior round of misdated notices:
During the spring and summer of 2020, the IRS digitally created approximately 31.2 million notices that it was unable to mail on the dates planned. Of these, the IRS purged approximately 12.3 million notices as they were not statutorily required. Of the remaining late notices, only a small percentage included an insert notifying the taxpayer of additional time to act. Originally, the IRS identified 1.8 million notices requiring an insert providing an extension of time for the taxpayer to act. Unfortunately, some notices containing statutory deadlines didn’t include the necessary insert. Once identified, the IRS sent supplemental letters to taxpayers informing them of additional extensions. For example, taxpayers who originally did not receive an insert providing additional time to request a Collection Due Process hearing received another letter providing more time. Similarly, taxpayers receiving late-mailed notices of refund disallowance were subsequently sent a supplemental letter clarifying the two-year period to challenge the refund disallowance in court. Although the IRS made efforts to provide additional time for taxpayers to respond, it created much confusion for taxpayers and practitioners. After all of the challenges the IRS and taxpayers faced during the previous backlog, it is difficult to understand how the IRS finds itself in the same position. Let’s hope this backlog mailing goes more smoothly.
It is surprising that the NTA does not understand how the second round of misdated notices occurred. TIGTA or GAO needs to take a hard look at what has happened here leading to the inability to send out notices on dates that match the date on the statutorily required notice and the decision making for knowingly sending out these notices rather than stopping the process and getting it right. Someone at the IRS should be able to explain why this has happened again; how many more time we might expect it to happen; and when the system might be fixed to prevent it from happening.
At the Mid-Winter ABA Tax Section meeting there will be a panel discussing the late issued notices on Thursday January 28 from 3-4:00 ET.