IRS Notices and The Employee Retention Tax Credit Waiting Game
Did you receive an IRS notice to submit a previously filed 2020 tax return? As the Internal Revenue Service struggles with a still massive backlog generated by the pandemic and staffing challenges – the same issues impacting nearly every sector of the economy – some automatically generated IRS notices are causing confusion for taxpayers.
And the same backlog issue is also delaying Employee Retention Tax Credit (ERTC) payments, leaving businesses and not-for-profits in a waiting game.
IRS provides relief
To provide relief and alleviate confusion, the IRS released a statement on January 27, 2022, announcing that it’s decided to suspend some automatically generated notices and related actions. For example, it has “decided to suspend notices in situations where we have credited taxpayers for payments but have no record of the tax return being filed. In addition, in many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed.”
“A good first step” – but more is needed
In response to this, the Tax Professionals United for Taxpayer Relief Coalition (coalition), a recently formed group that includes the AICPA, issued a statement saying that this is a “good first step.”
There’s additional work to do to alleviate the frustration and confusion taxpayers are feeling – but in its statement, the IRS maintains that it’s providing as much relief as possible, and that some of the coalition’s requests require Congressional intervention.
The coalition requests specific taxpayer relief measures such as suspending all automated compliance notices, offering a reasonable cause penalty abatement similar to the first-time abatement waiver, and relief from underpayment and late payment penalties.
In addition, on January 26, 2022, a bipartisan group of Congressional representatives and Senators sent a letter to Treasury Secretary Janet Yellen requesting similar relief.
The backlog by the numbers
The letter indicates that as of December 23, 2021, the IRS continues to have a backlog of 6 million 1040s and 2.3 million amended individual returns. Also, the IRS has more than 2 million Form 941s that must be processed before the nearly 500,000 amended Form 941s could be processed. Most of these amended Form 941s likely contain refund requests for the Employee retention Tax Credit (ERTC). The delay in processing these requests hurts small businesses and not-for-profits still waiting for these refunds.
We’ll do our best to keep you informed as this situation develops. And, if you’ve received a notice for resubmission of a previously filed return (CP80 Notice), we suggest you contact your tax advisor before responding.
What to do next
Have a question or need assistance navigating the tax landscape? Contact us for a free consultation – our tax professionals are here to help.