As discussed in Part One, over one million taxpayers living in a disaster area filed their returns early with a balance due, expecting to make a timely payment by the postponed dates. Unfortunately, for taxpayers covered by a disaster declaration the IRS followed its normal collection procedures and mailed an initial collection notice and demand, Notice CP14, reflecting an incorrect due date. The notice also informed the taxpayers that interest and penalties would accrue after the due date reflected on the front page of the notice. This is wrong for taxpayers covered by disaster declarations because payment is not required prior to August 15 or October 16, depending on the disaster area when the original due dates fall within the postponement period. To remedy the incorrect date, the IRS included a short paragraph on the back of page four of the Notice CP14. However, the additional language did not solve the problem. Instead, it led to confusion and questions.
After receiving complaints from affected taxpayers, the IRS decided to send out updated notices (Notice CP14CL) to clarify that taxpayers covered by disaster declarations do not have to pay before the postponed due date, August 15, 2023, or October 16, 2023. The updated notice will reiterate that early payment or taxpayer response is not needed. Impacted taxpayers should expect to start seeing those letters in the mail shortly.
Bottom Line: Taxpayers covered by a disaster declaration who receive a Notice CP14 should read the entire document including any inserts. The subsequent mailings, CP14CL state, “Since your address of record is located in a federally declared disaster area, the IRS has automatically granted you disaster relief. This gives you an extension of time to file your tax returns as well as make your tax payment listed on the CP14 Notices. You do not need to contact us to get this extra time to pay.”
Other taxpayers located in a disaster area and planning on filing their return without payment prior to the postponed date (October 16 or August 15) should expect to receive an erroneous Notice CP14, Notice and Demand, reflecting an incorrect due date prior to the postponed date. The challenge for many taxpayers is understanding the rules, feeling comfortable that they are living in a qualified “disaster relief area”, and certainty that they qualify for the additional time to timely pay without incurring interest or penalties. Taxpayers can verify what locations and counties are covered by the relief on irs.gov.
IRC § 6303(b) is not applicable because of the legal distinction between “the last date prescribed for payment of such tax” in IRC § 6303(b) (which is generally April 15 for individuals determined without regard to any extension of time for filing the return pursuant to IRC §§ 6151 and 6072) and the postponement of the deadline of a tax-related act under IRC § 7508A, when the Secretary determines that a taxpayer has been affected by a federally declared disaster.
When a filing or payment deadline is postponed under IRC § 7508A as a result of a federally declared disaster, the Secretary is authorized to “disregard” for up to one year certain acts a taxpayer is required to undertake under the Internal Revenue Code, including the filing of a tax return or payment of tax, but the wording of IRC § 7508A doesn’t change the time prescribed for payment of tax or extend the due dates for a tax-related act. That is likely a drafting glitch – or it was written when the frequency and consequences of “postponements” or disaster relief were less impactful than they are today.
When a federal disaster is declared, the postponement of a payment deadline does not change the prescribed due date for payment, it merely allows the IRS to disregard a time period of up to one year for performance of the tax-related act. This nuance is lost on non-tax professionals. If a taxpayer is given additional time to file a return or pay tax, “the last date prescribed for payment” should be the postponed due date – not the original due date. The current rule creates confusion and potentially harms taxpayers.
For example, in the National Taxpayer Advocate’s 2023 Purple Book, I highlighted that taxpayers generally have three years from the time they file their tax returns to submit refund claims, but more than 50 million taxpayers who took advantage of the “postponed” filing deadlines in 2020 and 2021 due to the COVID-19 pandemic have less than three years to file refund claims (because when a filing deadline is postponed under IRC § 7508A, the three-year lookback period in IRC § 6511(b)(2)(A) on amounts paid is not extended to include payments made more than three years earlier than the postponed filing date). The three-year lookback period is only expanded if a taxpayer obtains an “extension” of the filing deadline – not if the IRS “postpones” the filing deadline), which may cause the taxpayer to lose out on refunds for which they would otherwise be eligible.
After much prodding, on February 27, 2023, the IRS issued Notice 2023-21 fixing the mismatch between the time for filing a claim for credit or refund and the three-year lookback period caused by postponing certain filing deadlines for 2019 and 2020 returns, which would have resulted in the denial of timely claims for credit or refund for those taxpayers who took advantage of the postponed deadlines. See my February 27 blog (NTA Blog: Lookback Rule: The IRS Fixes the Refund Trap for the Unwary).
To fix the problem discussed in Part One of this blog regarding the apparent need for the IRS to issue notice and demand letters to taxpayers who still have additional time to pay, I strongly recommend that Congress amend IRC § 7508A and treat a disaster relief postponement in the same manner as prescribing tax-related deadlines for all purposes of the Code. We need to resolve this issue across the board rather than one disaster at a time.
In the event Congress decides not to implement that recommendation, Congress should consider amending IRC § 6303(b) to provide that when the Secretary postpones a filing deadline pursuant to IRC § 7508A, the deadline for issuing a notice and demand includes any periods of postponement. The language could be modified as follows:
6303(b) ASSESSMENT PRIOR TO LAST DATE FOR PAYMENT
Except where the Secretary believes collection would be jeopardized by delay, if any tax is assessed prior to the last date prescribed for payment of such tax or the due date postponed pursuant to IRC § 7508A, payment of such tax shall not be demanded under subsection (a) until after the latter of such dates.
As the IRS continues to mail notices with incorrect dates to these taxpayers in the disaster relief areas, it will continue to cause confusion, and I suspect it will increase calls to the IRS and to taxpayers’ return preparers. As the IRS implements the Strategic Operating Plan, there are several initiatives that could minimize or eliminate the communication issues in the future.
This situation is a perfect example why the IRS Commissioner is prioritizing IRS resources and objectives to provide taxpayers with clear, practical guidance, and utilize taxpayer-focused results as the IRS works to modernize its technology and transform how it works with taxpayers. TAS will continue and work with the IRS in exploring legal and administrative solutions to avoid this confusing, harmful, and bizarre result for taxpayers already dealing with challenges caused by a natural disaster. I will also continue to raise this issue with the tax-writing committees to refine legislative approaches that permanently fix this issue that the IRS can’t fix on its own.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.