Tax Update: IRS to Stop Certain Automated Notices

This is the third of a 4-part series on 2021 & 2022 Tax Changes.
(You may read part 2 out of 4 here.)

written by Gina Lee, Senior Associate at CK Tax Services LLC

On January 14, 2022, a coalition of organizations representing tax industry professionals and stakeholders (including the American Institute of CPAs (AICPA), National Society of Accountants (NSA), and National Society of Tax Professionals (NSTP)) sent a joint letter to IRS Commissioner, Chuck Rettig, and Treasury Assistant Secretary for Tax Policy, Lily Batchelder, calling on the IRS to grant taxpayers penalty relief and to pause its compliance activities. The requests follow the IRS’s reported failures to timely process returns and provide adequate customer service in the National Taxpayer Advocate’s 2021 Annual Report to Congress. 

Some of the findings in the 2021 Annual Report were that the IRS took much longer than usual to process taxpayer responses to its notices, in some cases so long that automated systems triggered compliance notices to taxpayers who had been waiting on the IRS to communicate back.  At our office, we have a number of clients for whom we had sent letters and requests for abatement of penalties to the IRS.  Some clients received multiple letters from the IRS that they need more time to review our correspondences and respond.  After a long silence from the IRS, some of our clients’ erroneously assessed liabilities were moved to the collection process automatically due to the IRS failing to process our correspondences in a timely manner and adjust our clients’ tax accounts to properly reflect the situation.  Though the IRS tried to prevent improper enforcement, “there were gaps,” according to the NTA report.

According to the NTA’s 2021 Annual Report, the IRS last year answered only one of every nine calls to its customer service representatives, resulting in widespread “frustration and dissatisfaction” with how the agency has handled taxpayer correspondence during the COVID-19 pandemic, the report said.  Due to the shortcomings of the IRS, the coalition requested in its letter that the IRS:

• discontinue automated compliance actions until the IRS has the resources to timely resolve the underlying issues contributing to long processing times and lack of transparency;

• “align requests for account holds” with penalty abatement request processing times;

• grant reasonable cause penalty waivers that do not affect a taxpayer’s eligibility for a future first-time abatement; and

• provide “target relief” regarding the underpayment of estimated tax and late payment penalties for tax years 2020 and 2021.

In a news release issued February 10, 2022, the IRS announced that it is suspending more individual and business notifications that are usually sent when a taxpayer has not complied with filing requirements (IR-2022-31).

The IRS said it has “several million” individual and business returns (both original and amended returns) that still have not been processed.  Until the agency has worked through the backlog, the automatic notices will stop.  In the meantime, the IRS will continue to assess the inventory to decide when to resume sending notices. “[O]ur efforts,” the IRS noted, “are not limited to suspension of these additional letters and the possibility of similar actions going forward.”

Some taxpayers will continue to receive notices including automated collection notices, but they generally do not need to respond to them, the IRS said.  Taxpayers that receive a notice that they think is accurate, however, should address the situation as, for example, interest or penalties could continue to accrue on unpaid balances.  The IRS may also continue issuing notices to certain taxpayers to resolve specific compliance issues.

The following individual notices are temporarily suspended:

• CP80, Unfiled Tax Return
• CP59 and CP759, Unfiled Tax Return(s) — 1st notice
• CP516 and CP616, Unfiled Tax Returns — 2nd notice
• CP518 and CP618, Final Notice – Return Delinquency
• CP501, Balance due — 1st notice
• CP503, Balance due — 2nd notice
• CP504, Final Balance Due Notice — 3rd Notice, Intent to Levy
• 2802C, Withholding Compliance Letter

The following business notices are temporarily suspended:

• CP259 and CP959, Return Delinquency
• CP518 and CP618, Final Notice – Return Delinquency

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Gina Jeyoung Lee is a senior associate at CK Tax. Gina is involved in individual and business tax planning and compliance, as well as domestic and international estate planning. Gina’s experience includes preparing and reviewing individual and business tax filings, preparing tax planning memoranda, and drafting estate planning documents.