The 2022 filing season is underway and it is anticipated to be a challenging one for taxpayers, preparers, and the IRS for paper filed returns and correspondence. The IRS has issued guidance providing tips on how taxpayers can avoid problems, and one important tip that I cannot stress enough is that taxpayers should make every effort to electronically file (e-file) their returns, especially during this challenging filing season, because the IRS will first process the backlog of 2020 paper returns before it begins processing 2021 paper returns.

An Initial Contact Letter is your notification that your tax return has been selected for an audit (also called an examination). Included in the letter is a listing of the specific items reported on your tax return or that you failed to include on your return that are being questioned by the IRS, with a request that you provide documentation to support the identified items.

The IRS Independent Office of Appeals (Appeals) serves as the administrative forum for any taxpayer contesting an IRS compliance action. If the IRS’s position is adverse to the taxpayer, Appeals is authorized to partially or fully concede the issue(s) in the taxpayer’s case based on the hazards of litigation.

International information return penalties are often thought of as primarily affecting rich people or multinational corporations with significant overseas assets. This is not true. Taxpayers – many of whom are lower- and middle-income individuals, small and midsize business owners, and immigrants – face significant and potentially life-changing penalties, even when they voluntarily comply, for failing to meet obscure and complex foreign information reporting requirements.

You received correspondence from the IRS requesting payment for the tax balance owing and the debt remains unpaid.

If you were counting on your tax refund to pay rent, cover groceries, or catch up on bills, it can be devastating to learn that your refund has been reduced, or taken entirely to pay an old debt. This happens when the IRS or the Bureau of Fiscal Service (BFS) offsets your refund to pay an existing debt. This is called a refund offset.

Throughout my tenure as the National Taxpayer Advocate, I have appreciated the ongoing exchange of ideas and information with my IRS colleagues as we work collaboratively to improve the taxpayer experience, including accelerating the payment of tax refunds to taxpayers entitled to receive them. But we don’t always agree on the same approach or priorities.

Letter 3219, Notice of Deficiency (also referred to as 90-Day Letter), is a taxpayer’s legal notice that the IRS is proposing a deficiency.

You have a balance on your tax account which you have not paid and the IRS has filed a public document, the Notice of Federal Tax Lien (NFTL), with the local and/or state authorities to alert creditors that the government has a right to your interests in any current and future property and assets.

In my October 14 blog, The IRS and Private Collection Agencies: Four Contracts Lapsed and Three New Ones Are in Place: What Does That Mean for Taxpayers?, I noted that the IRS’s contracts with two private collection agencies (PCAs) had expired, which prompted the IRS to recall 1.2 million accounts that had been assigned to those companies (Performant and Pioneer). I also reported that taxpayers who had entered into payment arrangements with these two PCAs were sent letters from the PCAs (but not from the IRS) informing them that the payment arrangements were terminated. I advised taxpayers, among other things, to contact the IRS to resolve their tax debts, to be aware that their accounts could be assigned to one of three other PCAs in the future, and of their right to work with the IRS rather than with a PCA. Approximately 17,000 taxpayers had informal payment arrangements with a PCA whose contract was terminated.

As the National Taxpayer Advocate, I have previously recommended reforms to prevent scam victims from being penalized by the tax system. Chief Counsel’s memo shows that more victims than perhaps previously thought might qualify for the theft loss deduction, but it also illustrates how much work remains to help all taxpayers who find themselves victims of fraud.

Theft Loss Deductions Then and Now

Section 165(c) of the Internal Revenue Code allows taxpayers to deduct losses sustained during the taxable year that are not reimbursed by insurance or other compensation. Historically, this provision has been a help to individuals suffering financial losses from theft, fraud, or other criminal conduct. Before the Tax Cuts and Jobs Act (TCJA) of 2017, theft losses – whether personal or investment-related – were subject to certain limitations based on adjusted gross income thresholds.