The IRS Nationwide Tax Forum was back in-person and in full swing this summer after three years of going virtual during the pandemic. At each of the five tax forums held across the country, I had the honor of hosting a series of town hall events where I heard directly from tax professionals about the issues that give them, and the taxpayers they represent, heartburn.
As the National Taxpayer Advocate, one of my roles (and the role of the Taxpayer Advocate Service (TAS)) is to serve as the “voice of the taxpayer” within the IRS. As I often say, “I can’t be a voice unless I listen.” Throughout the summer, I heard many similar problems tax professionals are experiencing from one coast to another.
One of my action plans from those listening sessions is to take what we learned directly to our partners at the IRS to work on finding solutions and encourage additional communications and education to inform practitioners and their clients of pending challenges. We also want to empower our tax practitioner partners with information that may help them navigate the problem areas that bubbled up during our town hall conversations. In this blog series, we are breaking down the most typical questions and topics that came up and will provide resources to help other taxpayers and tax professionals experiencing similar roadblocks.
For Those Who Joined Me: Thank You for Attending and Participating in the NTA Town Hall Series
Before I dive into the questions, I want to thank the tax professionals who participated in the town halls, asked great questions, and shared their experiences working with our local taxpayer advocate offices. None of us at TAS or the IRS could do our jobs without tax professionals, and our tax industry stakeholders. They are our eyes and ears on the ground, and their first-hand experiences are invaluable to help me, TAS, and the IRS better serve our taxpayers. So, thank you for bringing the hard questions, sharing your time, and for everything you do to support our tax system. And a shout out for those that shared examples of our local TAS employees’ successful efforts in resolving issues for their clients.
Because so many important issues were raised during the town halls, we will address them in a two-part blog. Here, in Part One, we are covering the top pandemic-related questions and issues that tax professionals and their clients are still having trouble navigating. In Part Two, we will dive deeper into questions regarding tax return preparation and processing, address concerns about some IRS forms, notices, and letters, and provide helpful resources.
Employee Retention Credit
Not surprisingly there was a lot of discussion at the tax forums concerning the Employee Retention Credit (ERC). The ERC is a pandemic-era refundable tax credit intended to help businesses and tax-exempt organizations that continued to pay employees during the COVID-19 shutdown, or businesses that had significant declines in gross receipts. Additionally, employers may be eligible for the ERC if they opened a qualified recovery startup business. To add additional complexity, eligibility requirements are different, depending on which periods in 2020 or 2021 for which the ERC is being claimed.
Sadly, this credit has become the focus of aggressive marketers and scammers who promise employers payouts of the credit based on inaccurate eligibility requirements and computation of the credit. At the tax forums we heard from tax professionals who were concerned about the flood of predatory advertisements and were looking for guidance on how to protect their clients from falling victim to an ERC scam.
In response to the surge of questionable claims, the IRS announced on September 14 a moratorium on processing any new ERC claims until at least the end of this year. This action is intended to protect honest small business owners and give the IRS time to review existing ERC claims for compliance.
Unfortunately, bad actors are negatively impacting processing times and those taxpayers Congress intended to protect are being disadvantaged by the delays in processing their refunds. And for those taxpayers that were taken advantage of and filed eligible claims, stay tuned as the IRS will soon be announcing how you can correct your claims.
For the amended returns pending processing before the September 14 announcement, the IRS will continue to work the ERC claims and pay refunds for legitimate claims, but processing times will take longer, and the IRS may require additional documentation to ensure the legitimacy of claims. For more information about the ERC, please read our TAS Tax Tip: Don’t Fall Victim to an Employee Retention Credit Scheme, and review the IRS’s guidance on ERC eligibility, including frequently asked questions, the red flags for ERC claims, and the latest ERC news on IRS.gov.
In the tax industry we often deal with ethical issues. I recognize that many tax professionals faced the possibility of losing clients to do the right thing when it came to overly aggressive ERC claims. I understand the challenge this has been for tax professionals, and I have immense gratitude for all of you who are pushing back, questioning the basis and support for the claim, and doing what is right. You are helping to keep the tide from becoming a storm and in the end protecting our vulnerable taxpayers.
Interest and Penalties Accrued During the Backlog, Statute of Limitations, and When Will Collection Notices Resume
A large percentage of questions during the town hall conversations involved tax professionals with clients who are still impacted from the IRS backlog of processing paper tax returns and correspondence.
Many of the questions concerned erroneous interest and penalties that accrued during the backlog when a taxpayer filed timely or responded to a notice or letter in a timely manner but are still waiting a response from the IRS or a resolution for their tax issue.
The short answer for these situations, is generally taxpayers should be able to get the IRS to remove the interest and penalties, if they timely filed. To prove timeliness, a taxpayer or tax professional can typically show proof of mailing.
Tax professionals with clients improperly assessed interest and penalties should follow these steps to remedy the issue:
- Step 1: Contact the IRS by calling the Practitioner Priority Service line at 866-860-4245.
- Step 2: Show proof of mailing (be sure to keep the originals and send in copies of proof of mailing to the IRS).
- Step 3: If this does not resolve the issue, contact TAS, fill out, and mail or fax Form 911.
Note: Use this same process for cases where the statute of limitations is a factor. If you have paperwork to establish timely filing, it may not be too late to get a refund or other resolution. If you have provided proof and are still having trouble getting the issue resolved, that is when TAS can intervene and advocate to get resolution on your behalf.
It is important to understand that typically interest and penalties start to accrue the date the return is due. So even though the IRS suspended sending about a dozen collection notices and letters during the backlog, the fact that a taxpayer was not receiving regular notices from the IRS does not mean that interest and penalties stopped accruing. It is time for the IRS to reinstate issuing notices and provide taxpayers with information on their outstanding balances and provide collection alternatives.
As I explained in my NTA Blog series on collections: