The end of the 2021 filing season and the clearing of the backlog

The end of the regular 2021 filing season and the clearing of the backlog, both caused by the

   The IRS is making progress on paper filed returns. Unfortunately this progress is creating ... [+] additional mail for taxpayers and the IRS because the completed returns are initiating automated error notices that often must be responded to by mail. 
 The IRS is making progress on paper filed returns. Unfortunately, this progress is creating ... [+] additional mail for taxpayers and the IRS, because completed returns are initiating automated error notices that often must be responded to by mail.

While the IRS has indicated that the backlog of unprocessed paper returns is going down, it remains clear that a huge volume of mail remains unprocessed, and both the end of the regular 2021 filing season and clearing the backlog are creating more mail for both taxpayers and the IRS as a result of this notice: CP14 in particular is causing issues this summer.

CP 14 notices are issued when a taxpayer has an unpaid balance due — in early June, tax professionals on social media started reporting problems with electronic payments made by the taxpayer listed as the spouse on jointly filed returns, specifically CP 14 notices were being issued for accounts where an electronic payment was made by a spouse using IRS Direct Pay and the payment was not applied to the balance due on the jointly filed return — for payments that should have been applied to joint and several liability but weren't.On a jointly filed return, each spouse has "joint and several" liability for paying the balance due, so any payment made by a spouse should be applied to the joint and several liability account(s). But that hasn't been happening! And tax professionals can't figure out why.

Some tax professionals who have called the IRS' Practitioner Priority Line (PPL) on behalf of their clients have been told by some IRS representatives that "there is no way of knowing" that the payment is for the jointly filed return and not some other tax debt attached to the spouse's SSN. This, quite simply, is not correct. When making a payment using Direct Pay taxpayers must specify a reason for the payment (balance due, estimated payment, etc.), the tax form to which it applies (Form 1040, etc.) and year to which it applies. If a spouse of taxpayer makes a Direct Pay payment for balance due on Form 1040 for year they filed jointly with their spouse (the primary taxpayer on joint return) there should be no reason why that payment would not be automatically and correctly applied. And yet, CP-14s continue arriving in taxpayers' mailboxes.

   Taxpayers must specify the reason, the form, and the tax year to which a payment applies when making ... [+] a payment using IRS Direct Pay. 
  Photo: Amber Gray-Fenner
 When using IRS Direct Pay, taxpayers must specify the reason, the form, and the tax year to which a payment applies.

The problem has become so widespread that some tax professionals on #TaxTwitter recently decided to report it to the IRS Systemic Advocacy Management System (SAMS) in bulk. As of this writing, the SAMS representative handling the issue has noted that a subject matter expert (SME) has been assigned, and any cases reported will be passed along to the SME to determine if a systemic issue actually exists and if it is still in the “information gathering” part of the process. In other words, just because tax professionals think an issue is systemic doesn't mean it actually is.When Matthew Cordes, EA owner of Cordes & Associates Financial Group in Garrett, IN reported his clients' information and presented facts about their case with a SAMS representative he was told "She was cordial and seemed to want to find out more information," but "was unwilling to call this a systemic issue." Instead his clients' facts were provided for further investigation by an SME.

The SME’s responsibility is to ensure that the same set of circumstances keeps causing the same problem over and over again. As with most errors in computer programming and other complex systems, a problem must be repeatable to be defined as systemic and then solved. When I spoke on behalf of one of my clients to SAMS, the SAMS representative urged tax professionals to report it. She noted that it was always “better to say something” otherwise, the IRS has no idea that the problem is widespread rather than isolated.

Reporting the issue to SAMS does not help individual clients or their representatives. Matt Holmquist, a tax professional in Arlington, TX, reported the problem on behalf of two clients. He noted that for smaller clients his firm typically asks the client to attempt to call the IRS themselves in order to minimize fees. It's only when the client cannot resolve it by themselves that Matt's firm goes through "the more time and cost-consuming process of obtaining a POA [IRS Power of Attorney, Form 2848]" and either calls PPL or drafts and sends a certified letter on behalf of the client. Brian Borawski, a CPA in Detroit area also reported issue to SAMS on behalf of four clients. While he felt that call was "partially productive" in terms of getting what appears to be systemic issue on IRS radar he still notes that "the fact that our clients even got notices was a waste of time" (their's and IRS') and it was annoying being told “just address them how [he] normally would” because there wasn't any wholesale resolution forthcoming.

Until the issue is recognized as systemic (and if so identified, fixed), tax professionals and taxpayers have two options: they can call or write to the IRS to try to get the payment applied to the correct balance due. It's been well reported that calling the IRS is a nightmare. Mail isn't much better. Robert Broome, Director of Advocacy for North Carolina Association of CPAs, noted that mailing anything to IRS is a "joke of an option." How could it be otherwise when

Of course, calling is no less frustrating for taxpayers and their representatives. Some tax professionals have used the word “relentless” to describe their dialing efforts in an attempt to get put into the PPL's hold queue. Others' social media posts have them wondering whether to leave their desk to use the restroom or eat or continue to remain on hold. One reported being on hold for over two hours and then being disconnected. Trying to resolve anything with the IRS by phone or by mail right has been an exercise in frustration for well over 18 months. The frustration has been exacerbated by the IRS's failure  failure to provide a number that can be used to provide a response via fax, as well as by the fact that so many of these letters are simply incorrect.

Many tax professionals can quickly write a response and provide the proof necessary to quickly resolve these matters, and they would prefer the option of faxing the response and receiving immediate confirmation that it was received rather than mailing a response into a black hole or spending hours on the phone. Nevertheless, Matt Smith, CPA in Manhattan Beach, CA says: "I have instant confirmation they [the IRS] got something a year ago that they have no record of having so...not always a sure thing." The situation has become so frustrating that Broome's organization wrote to North Carolina's full congressional delegation on behalf of its members & North Carolina taxpayers asking them to address this issue with IRS.

Taxpayers can be certain that as long as they can prove the payment was made and when it was made (using the Direct Pay confirmation information and/or information from bank statements) that they will be given credit for the amount paid and the payment will be applied to the balance due on the date it was made. In other words, as long as they can prove that a timely payment has been made, penalties and interest specified in a notice will not apply. Still, notices are scary. Kiva Reissig, an Enrolled Agent in Stockton, CA had to make multiple calls to PPL before getting through to advocate on behalf of a client who received a CP-14 notice about an unpaid six-figure balance. The penalties and interest were in five figures. Needless to say, her client was panicking. Fortunately for him Reissig wasn't bothered by this at all: she spent some time trying but eventually managed to resolve issue once she could reach IRS by phone; Reissig also pointed out that Direct Pay has been available for several years now & this is first time she saw such high volume of issues arise with it

The problems with erroneous notices may not be isolated to CP-14 notices either. Kathy Buchs, CPA, is the Senior Tax Advisor and Team Leader Director at MAI Capital Management in Cleveland, OH. She notes that while her firm has not seen a pattern of erroneous CP-14s, it is rare that they use the spouse's SSN to make the payment. What she has noticed are IRS notices stating that they never received a payment made using automatic debit from a client's account. She noted her firm is also seeing a much higher volume of these notices than they have in prior years. She feels that erroneous notices in general are presenting an issue this year. She says that her firm is seeing an increase in not only the number of notices that are erroneous (but where the problem can be explained) but also those which make no sense; their tax professionals cannot figure out where the numbers came from or otherwise tie out information on how it reconciles to taxpayer's tax return. Lea Garrity, EA owner of Garrity Enterprise Inc., Dixon CA wonders if all of new staff IRS has brought on paper-filed returns processing might contribute to problem The inexperienced staff may be more prone to data entry and other processing errors and this could result in increase in CP2000 matching notice (where data on tax return doesn't match what IRS has on file from third party information returns such as W2s & 1099s).

Buchs recommends that taxpayers who receive a notice from the IRS (or a state taxing authority) carefully review the notice for accuracy and never assume that it is correct. Buchs' firm typically provides this type of low-level notice resolution as a courtesy to its clients, but she states that it is reasonable for firms to charge either hourly for notice resolution or to offer notice resolution with return preparation for an additional fee. It's up to your tax professional how much they charge, and whether or not they will handle the notice. If your tax professional won't do so, you should still provide them with a copy of the letter. They may review it and at least have it on file in case there are other issues in the future. Taxpayers and tax professionals should continue being patient when dealing with the IRS.

What can the IRS do? In January of this year, tax industry associations asked the IRS to stop issuing automated compliance actions “until the IRS has the resources to resolve these matters in a timely manner.” The IRS paused some, but not all, of these notices. The tax agency could also make investigating the CP-14 issue through SAMS a top priority and if they discover that it's systemic, they could try to fix it right away. They could also make clearing their backlog of representative authorization requests an urgent matter and provide taxpayers or their representatives with an online way to resolve this by submitting necessary information. Finally, they could extend or even suspend response deadline times (or give more than a little leeway when taxpayer's responses after erroneous CP-14s are received after deadline) until they get their house in order.