If you got a refund from your 2020 federal income tax return, you can be fairly sure your return was processed. If you owed money, and paid it with a check, your return may not have been processed as your return and check are separated immediately upon receipt. When the IRS then claims your return wasn’t filed, it may be their fault for not processing it but your problem to prove it. This article talks about using a return receipt but how many people use those?
My personal view is that the safest, fastest way to file your federal income tax return is electronically — either using tax return preparation software like H&R Block or Turbotax.
Filing that way not only expedites your refund (if you’re owed one) but also verifies acceptance of the return by the IRS and by your state (if you need to file a state tax return).
It’s worth pointing out that this mess is a direct consequence of failing to adequately the IRS for the tasks that it has to fulfill. In fact, Congress continues to impose additional burdens on the IRS while making it impossible for them to hire the staff they need much less purchase additional equipment. There was a formula at one point that every dollar spent funding the IRS produced $X of tax revenue and that $X was large.
No wonder the IRS has no resources to audit high income taxpayers. That requires auditors and accountants — people the IRS doesn’t have. Audits of low income people are easy as they leave a trail of W-2s, Form-1099s and the like. The IRS is forced by funding to go only after the easy money, not the most productive.
It’s enough to make a law-abiding taxpayer’s teeth grind.
Susan Tompor Detroit Free Press
Their checks to the U.S. Treasury were cashed nearly a year ago. But taxpayers say they’re now receiving letters from the Internal Revenue Service asking them to immediately file their 2020 federal income tax returns.
Yes, copies of their 2020 returns. Yes, the same paper returns they filed last spring.
“Please file today,” the letter begins. “Send your signed return to the address shown above. We’ll assign the credit to the tax you owe and refund any over payment if you owe no other taxes or obligations.”
Some readers who contacted me wondered whether if this could be some sort of scam.
“It wasn’t a text message. It wasn’t an email. It was a letter,” said Anne Hovell, 72, who recently received the IRS letter dated Jan. 24.
According to the letter sent to the couple in Gibraltar, the credit on their account is $1,056. The IRS letter warns that there can be more problems ahead “if we don’t hear from you.”
“If you don’t file your return or contact us,” the form letter says, “you may lose this credit. The Internal Revenue Code sets strict time limits for refunding or transferring credits.”
Hovell, who keeps track of transactions in her checking account, knows the money cleared a year ago and she recognized that the amount listed as a credit is what she paid in taxes.
“If a check doesn’t clear, I follow up,” she said. “It did clear.”
Hovell, who retired as a consultant for a tech company, knows that scammers often use email or texts. But she wondered if somehow the scammers were getting even more sophisticated and created actual letters to demand copies of tax returns.
The notion of a scam seemed to make even more sense than thinking that the IRS could be sending letters to people who already paid their taxes and filed their returns.
Why would the IRS need another return?
If the federal government cashed their checks, she and others wondered, doesn’t that mean the IRS received their return in the mail — since the return and check were mailed together? Why wouldn’t the IRS already have their tax returns?
It’s a good question — and frankly one that could leave you in shock when you’re thinking about all the work that goes into filing your tax return in the first place. It’s very unsettling to get an IRS notice when you think you did everything by the book. Filed the return on time. Sent the money that was due.
The less scary part here, of course, is that the IRS wasn’t trying to collect money from the couple.
The letters that readers sent to me are marked “Notice CP80.” And the letters I saw were sent out of Kansas City, Missouri.
The letter goes on to say: “If you have already filed this return: Please send a newly-signed copy to the address shown above. Be sure to attach copies of all schedules and other documents you included with the original return.”
Unprocessed returns built up
The pandemic has flipped a lot of things in life upside down.
The tax system has undergone sizable challenges since the two-year-long pandemic began in early 2020.
As of Dec. 4, 2021, the IRS said it had a backlog of 6.7 million unprocessed individual returns and 2.6 million unprocessed amended individual returns.
Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said the IRS is still processing millions of 2020 returns and these notices go out automatically when the IRS believes it has not received a return.
While it might seem on the surface that delays have gone on so long that the IRS is unable to find many of the paper returns, many experts say that’s not likely to be the case at all. A glut of automated notices might have been sent to many people who likely should not have received them.
Edward Karl, vice president of tax policy and advocacy for the American Institute of CPAs, said the CP80 notice has an important place in the process. The notice would normally be sent when a tax return for a given year wasn’t received even though the filer might have paid a good deal of money already into the system, such as through estimated taxes.
Someone might have forgotten to file a return when they have a credit to their account, money that could be owed to them in a refund, when there’s been a troubling event, such as a trauma, a divorce, a death or natural disaster.
The CP80 notice lets the taxpayer know that when a return hasn’t been filed, and they can file one in time to claim any refund money owed.
In most cases, an original return claiming a refund must be filed within three years of its due date for the IRS to issue a refund.
“The only issue is we’re not in normal times,” Karl said.
The IRS, like the rest of the country, has faced more than its fair share of challenges since the COVID-19 pandemic hit. To stem outbreaks of the virus, the IRS had to shut down its centers earlier in the pandemic and IRS employees had to be protected but piles of unprocessed returns built up.
“They have such a backlog of processing,” Karl said. “The pandemic has put them in a deep hole.”
The IRS backs off but not soon enough for some
The notices sent out in January, though, seem to be adding to the paperwork.
On Thursday, the IRS announced that it would “suspend notices in situations where we have credited taxpayers for payments but have no record of the tax return being filed.”
The idea behind stopping the notices is to avoid even more confusion.
The IRS noted in its statement: “In many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed. Stopping these letters which could have otherwise been sent to thousands of taxpayers — will help avoid confusion.”
Unfortunately, many taxpayers opened their mail already and read the notices before the IRS announced that it was halting some of these mailings.
Diana Vollmayer, of Rochester Hills, said she and her husband already mailed the copy of their 2020 return “certified/with return receipt.”
“We are keeping records of all transactions,” she said, noting that she, too, was told via her notice of a credit to the couple’s account. They made estimated tax payments but had filed their 2020 return by paper last spring and paid the rest of the money that they owed when they filed the return.
She said her friend received one of these letters, too, but hired a CPA to review her 2020 taxes and handle the situation for her.
The IRS didn’t offer a clear detail of what notices it is suspending in its statement, as it doesn’t even mention CP80 in its statement.
In an email response to the Free Press, the IRS said it has suspended issuing the CP80 and CP080 (Unfiled Tax Return – Credit on Account) notices.
The IRS said the CP80 is a notice letter that informs a taxpayer that the agency has credited payments and/or other credits to their tax account for a certain tax period but the agency hasn’t received their tax return.
The IRS has not disclosed how many of the notices went out this month. But confirmed that the letters aren’t a scam.
“If a taxpayer has received a notice for a 2020 return they should not refile,” according to Luis Garcia, a spokesperson for the IRS in Detroit.
“For taxpayers who timely filed their 2019 tax return, including extensions, and have received a notice they should refile their return,” Garcia said.
Taxpayers also can establish and log into their tax account online at IRS.gov to view their tax status and any correspondence the IRS has sent.
Karl maintains that taxpayers who received a notice now regarding a 2020 return would not have to send a copy of the return if they already filed a 2020 return and know that their payment went through.
If you didn’t file a return, obviously, you could have money that you might be owed based on the notice and would want to file to claim a refund.
If you received a notice regarding a 2019 return, Karl said, you would need to send in another signed copy.
The AICPA is part of a group of stakeholders called the Tax Professionals United for Taxpayer Relief Coalition, which is seeking more relief for taxpayers in light of the pandemic-related challenges.
The coalition’s recommendations submitted to the IRS include “discontinuing automated compliance actions until the IRS is prepared to devote the necessary resources for a timely resolution — similar recommendation also included in the 2021 National Taxpayer Advocate report.”
The automated system makes more sense in more normal times when the backlog isn’t so great. But bulk batches of notices now pose a great risk of alerting many taxpayers to problems that aren’t real on their end, according to professionals.
“They’re going to be wrong in many instances because of the backlog,” Karl said. He said the news Thursday was welcome but more needed to be done.
The group also wants to see, among other changes, the IRS providing taxpayers with targeted relief from the underpayment and the late payment penalty for the 2020 and 2021 tax year.
The IRS maintains that “making significant operational changes to our systems, including stopping certain notices from being printed and mailed, may require programming and other operational changes. With an outdated technological ecosystem, these are changes that cannot be made as efficiently as they should be — and that is part of the reason why investing in IRS IT modernization is so important.”
Getting one of these letters, of course, raises other questions, such as why would the IRS have cashed the check if the return that was filed wasn’t processed?
Karl noted that cashing the check when it’s its received is part of the normal process. It’s not a cause for alarm.
“It’s prudent,” Karl said. The U.S. Treasury uses this money to cover a wide range of government expenditures.
You make your check payable to the United States Treasury and include a payment voucher called Form 1099-V that goes with the paper check. The IRS notes: “When we use information from your check to make an electronic fund transfer, funds may be withdrawn from your account as soon as the same day we receive your payment.”
The returns are separated from the check and then returns are processed further down the line after the check has been cashed.
Normally, we’re not thinking about the ins-and-outs of how the IRS handles all that paperwork. But again, not much has been normal for the past two years.
Contact Susan Tompor: firstname.lastname@example.org. Follow her on Twitter @tompor.