Earlier this week I received nine notices from IRS for clients who had filed their Forms 1041 in June with balances due. The notice asked for the taxes per the return as well as interest and penalties for failure to pay. The returns were filed and processed electronically in mid-June, but the checks were mailed with Form 1041-V to the Ogden Service Center. None of the checks had been cashed.
The majority of individual 1040 filers send checks to IRS via a collection and processing service (lockbox) provided by a network of financial institutions that accelerates the flow of funds to the U.S. Treasury. That is not the case when a check is sent to an IRS Service Center.
I was able to contact a hard-working, somewhat overwhelmed IRS customer service representative at the Ogden Service Center. She explained that while IRS automated computer billings had resumed, any mail received at the Service Center between March 13 and June 30 was likely still unopened in the rooms of boxes containing mail that had arrived during the Covid-related shut-down. This included tax returns and payments directed to Service Center addresses. The Service Centers received about a million pieces of mail per week during that time. No one was there to open it.
Hopefully IRS will realize they have a systemic problem, remedy it with a public announcement and cease sending billing notices until they can open their mail. Further, IRS should consider using the lock-box approach for all paper payment processing, to achieve more efficiency with that system, too.
While processing the mail is greatly impacted currently, IRS’ collection billing system is fully automated and making up for the lost time by sending even more billing notices than usual. IRS billing process is consistent; it is machine programmed. After the first letter goes out, approximately four weeks later if no money is deemed received, a second notice goes out. Each letter becomes sterner. By the third letter, IRS is reminding taxpayers of their rights to lien, levy and seize in the event of non-payment.
What should you do if you get a letter? If your circumstances are identical to the one just described, you might consider waiting to see if IRS shows forbearance until it can open all the mail and doesn’t follow-up with another notice. Or, wait to see if the next letter in the collection series shows up. If you don’t want the suspense and uncertainty, you can call the IRS and ask that they place a hold on further collection actions to give them time to find your check. Generally, the hold can be for eight weeks. The phone number to call is in the top right-hand corner of the letter you received. Anticipate lengthy hold times; they are receiving lots of calls at this time.
Due to the nature of the automated system, ignoring the notices can lead to more problems. Unless a human being intervenes (either because you call and ask them to delay billing until they find your check, or by IRS finding your check and crediting it to your account as of the date it was sent) the collection process will continue. We were notified today by a client of a payment acknowledged as received at the Service Center in late May based on the certified mail receipt yet processed by IRS and credited after July 15. This generated an IRS letter requesting a penalty for failure to timely pay the amount due. Unless we are able to get on the telephones and work with Customer Assistance Representatives, these issues will progress to referral to more assertive human collection agents, becoming more difficult and frustrating to resolve.
IRS warns that failure to make contact when they believe you owe tax can result in their actions of
- Filing a Notice of Federal Tax Lien
- Serving a Notice of Levy, or
- Offsetting a refund to which you’re entitled.
Best advice: never ignore IRS notices. Especially if you believe they are not correct. Get your documentation ready (copy of the certified mail receipt; copy of your checkbook showing you wrote the check and a copy of your bank statement showing it has not been cashed). Find the contact phone number in the top right corner of the letter. Use it. If you are told about the mail delay, ask them to place a “stay-up” on your account for as long as they believe it will take to open the mail and process what may be millions of pieces of correspondence and checks.