Brace for the impact of the ACTC: IRS update

December 7, 2021 1:24 PM

Taxpayers and tax preparers need to be ready for the ramifications of Advance Child Tax Credit payments next tax season, according to the Internal Revenue Service.

The potential impact of the ACTC was among a number of topics addressed by the service at a recent meeting of preparer groups. These included improvements to the Automated Collection System, disaster relief and the IRSAC Annual Report, according to Stephen Mankowski, tax chair of the National Conference of CPA Practitioners, who attended the meeting.

Advance Child Tax Credit payments

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“This is the biggest concern coming to the end of the year,” mentioned Mankowski. “There will need to be a reconciliation on Form 1040 similar to what was done for the stimulus payments. There might be a bit of a learning curve involved, but once a preparer gets through the first several returns it won’t be a significant issue.”

“But for many taxpayers, the advance payments will cause them to receive lower or no refunds, and there may be some surprises for those that end up owing money,” he added. “Over the years they’ve seen smaller refunds as a result of the new Form W-4, which was intended to get taxpayers closer to a breakeven point so they would have a little extra money in their pockets to spend during the year. Now with the ACTC, many will get less back, or will owe.”

If a taxpayer received payments for two children based on the 2020 return and they don’t claim both children in 2021, they would need to repay the excess on their return, unless protected under the law, he explained. Safe harbor protection only pertains to qualifying children and is based on adjusted gross income. Schedule 8812 (Form 1040) has been reformatted to account for these payments. “The IRS will send out Letter 6419, an end-of-year statement that outlines the payments received as well as qualifying children. It’s scheduled to be mailed in January,” he added.

The ACTC was not subject to offset, Mankowski observed: “It’s possible that one taxpayer could receive the ACTC based on their 2020 return and have repayment that was covered under the safe harbor, while the other taxpayer, who can legitimately claim the child, can also get the credit on their 2021 tax return, so there’s the potential for the CTC to be received by both parents.”

ACS improvements

An IRS office building in the East Harlem neighborhood of New York

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All 19 IRS Automated Collection System call sites have answered over 1.2 million text messages from taxpayers this year, according to Mankowski.

“The average wait time for a response is approximately 32 seconds,” he said. “The lines are open from 8 a.m. through 8 p.m. and include a Text Chat feature that was launched in 2017. ACS has recently added bilingual support in Puerto Rico, as well as international Text Chat.”

A new feature, Chatbot, was launched in November 2021, with a full launch scheduled for January 2022. “This includes the ability to answer basic information and FAQs, as well as account information and one-time payments. The Callback initiative also launched in November, with a full launch scheduled for January,” he said.

To take advantage of these features, taxpayers need to have an online account and be online where they will be given an option to use Chatbot and Text Chat.

IRS disaster tax relief

A member of a private critical crisis search and rescue team holds a stop sign as he wades through floodwaters after Hurricane Florence hit in Carolina Beach, North Carolina, U.S., on Monday, Sept. 17, 2018.

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There are more than 60 disaster events annually, but only about 20 receive IRS disaster relief, Mankowski remarked. “During 2021, over 100 million taxpayers received IRS disaster tax relief. Under the Stafford Act, the IRS is not a ‘first responder’ for disasters and cannot provide disaster aid,” he said. “The president makes the call regarding what is an emergency before and after a natural disaster occurs. Disaster relief is claimed on tax returns as a casualty loss. Administrative relief refers to the IRS providing additional time to file.”

IRSAC Annual Report

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The meeting highlighted the IRSAC annual report, which is now available at

www.irs.gov/irsac

The IRS budget: The agency has increasing responsibility and roles, yet a reduced workforce. They are requesting a $13.2 billion budget in support of the budget presented to Congress, plus an additional $417 million for enforcement purposes.
The Taxpayer First Act: The IRS has to report to Congress to streamline service to taxpayers. The act incudes legislative mandates to modernize structure, including compliance.
Appeals: There were several recommendations, including reorganization, digital services, and improvements to the IRS work force.
COVID-19: Every office was impacted by shutdowns, working from home, reopening, and resources.
Paper-filed returns: The IRS is confronting this issue with authenticated chat and digital signatures, until more viable alternatives are in place.