IRS to resume sending balance due notices

The Internal Revenue Service is expected to soon restart mailing out the automated collection notices that it paused last year while it tried to catch up on its backlog of unprocessed tax returns.

Darren Guillot, the IRS's deputy commissioner for collection and operations support, reportedly told an American Bar Association conference earlier this month that the automated collection notices would resume, according to Thomson Reuters. An estimated 5 million to 8 million taxpayers will begin receiving notices that they owe money to the IRS around the end of May and the beginning of June.

The IRS later clarified that its CP14 notices were never entirely suspended during the COVID-19 pandemic, and the projected figure refers to taxpayers who filed a Tax Year 2022 return and will receive a balance due notice as required after tax season. 

In February 2022, the IRS announced it was suspending the mailing of about a dozen other notices to allow it to catch up with its backlog of millions of unprocessed tax returns from that tax season and the prior year. Those included the CP80 for unfiled tax returns; the CP501, CP503 and CP504 first, second and final balance due notices (the third of which is an intent to levy); and the 2802C withholding compliance letter, as well as Spanish-language CP259, CP518, CP618 and CP959 notices about return delinquency.

Andrew Harrer/Bloomberg

The IRS is mostly caught up now on its unprocessed returns from last year, although it recently reported that it had 4.2 million unprocessed tax returns as of May 13, including Tax Year 2022 returns, 2021 returns that need review of correction, and late-filed prior-year returns.

The National Association of Tax Professionals is urging taxpayers and tax preparers to brace for the onslaught of new notices.

"The IRS is resuming business as usual now that they're getting a lot of the backlog dealt with," said Tom O'Saben, government relations and tax content director at the NATP. "People should not ignore a notice from the IRS. As the notices get further and further along, you face the possibility of having a levy on a bank account or liens placed against them. The first thing I would advise taxpayers to do, if they can, is to set up an online account with the IRS. It's about a 20-minute process, but then they can see exactly what the IRS is seeing."

Taxpayers have reported problems using the ID.me technology that the IRS is now using to authenticate their identities, which requires them to either submit a selfie for facial recognition along with government identification like a driver's license or passport, or to go through a live virtual interview with customer service agents (see story). 

Many taxpayers choose to use a tax professional to help them deal with the IRS notices, but that may mean granting power of attorney to access the notices. 

"If you're going to hire a professional to do it for you, they're going to need you to grant that power of attorney so they can access that same information," said O'Saben. "If somebody brings me a letter to my office, for example, my first question is going to be: 'What's the root cause of this?' There may be something that we can possibly contest or file an amended return to address. We have to get more information."

Companies that advertise quick fixes to IRS debt problems may cause their own headaches for taxpayers. The IRS itself often offers options like extensions, payment plans, installment agreements and offers in compromise that a taxpayer or tax professional can arrange. "The IRS has all kinds of tools available," said O'Saben. 

Separately, the NATP is also backing a recent bipartisan Senate bill introduced last week by Sen. Sherrod Brown, D-Ohio, and Bill Cassidy, R-Louisiana, called the Red Tape Reduction Act, which would increase the threshold for when individuals and small-business owners receive Form 1099-K from third-party settlement companies (see story).

The Red Tape Reduction Act would raise the threshold from $600 to $10,000, ensuring that fewer small businesses and individuals will be impacted by potentially excessive paperwork and compliance requirements for online activity. The American Rescue Plan Act dropped the reporting requirement to $600 from $20,000, to be enacted for the 2024 tax season when filing 2023 returns.

"While the intentions of the American Rescue Plan Act were well-intended and meant to capture unreported income in the economy, the $600 reporting threshold would have caused undue duress to many small businesses and individuals, not to mention the paperwork nightmare the lower limits would have created for the IRS," said O'Saben in a statement. "Increasing the filing threshold to $10,000 will better address the intent of ARPA and at the same time reduce the administrative burden the $600 threshold would have created."