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Regulation and Compliance > Federal Regulation > IRS

How the IRS’ Tax Backlog Could Affect Your Clients

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Months ago, the IRS extended the 2019 tax filing date from April 15 to July 15 because of the impact of the COVID-19 pandemic, but now many taxpayers who mailed their returns or tax payments on time are receiving billing notices from the tax agency for nonpayment.

“I’m getting notes from all over the country that ‘this has happened to me,’” said Claudia Hill, president of Tax Mam, which provides tax preparation and planning and tax problem assistance for individuals, businesses, estates and trusts. 

She explained in an interview with ThinkAdvisor and in an article published on that the months-long closures of IRS service centers around the country due to the pandemic have created a massive backlog of tax payments for the agency to process (The service centers didn’t begin to reopen until sometime in June.)

In the meantime, the fully automated IRS billing system sent out notices of nonpayment to those taxpayers who mailed their checks to the service centers.

“About 5%-10% of our clients are getting notices about not filing their returns and no valid payment on record from the automated IRS system,” said Miklos Ringbauer, the owner of MiklosCPA in Los Angeles.

Harold Justice, a client of Jeffrey Levine, a certified financial planner, CPA and director of advanced planning at Buckingham Wealth Partners, said he was “shook up” by the notice he received from the IRS for nonpayment of taxes on a trust, received weeks after he had sent the check.

The payment eventually went through, and he subsequently signed up for the Electronic Federal Tax Payment System (EFTPS) to avoid any problems in the future.

“This is a really good reason to get clients to pay taxes electronically,” said Levine, referring to the IRS backlog and erroneous nonpayment notices. “File electronically. Pay electronically.”

Short of that, checks and returns mailed to the IRS service centers (not to lockboxes via financial intermediaries like banks) should be sent by registered mail so that taxpayers can prove they were mailed. 

The IRS is aware of the problem with nonpayment notices sent to taxpayers who have paid their taxes on time. On Aug. 13, it posted a notice on its website that checks mailed to the agency “may still be unopened in the backlog of mail the IRS is processing due to COVID-19” but payments will be posted as of the date they were received rather than the date they were processed.

In the meantime, taxpayers “should not cancel their checks and should ensure funds continue to be available so the IRS can process them,” according to the notice. Checks received between March 1 and July 15 from accounts with insufficient funds to cover the debit will not be charged “bad check penalties,” though interest and other penalties may still apply, according to the IRS.

For that reason, Scott Hoppe, owner of Why Blu, an accounting firm based in San Francisco, said taxpayers should make sure to keep their checking account funded and they should not ignore the IRS nonpayment notices. If they call the tax agency to fix the problem, they should be prepared for long wait times.

Alternatively, taxpayers can have their accountants use the practitioner hotline to get through to the IRS, Ringbauer said.

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