The Internal Revenue Service (IRS) has been experiencing several delays and other issues in connection with processing tax returns and payments. Below we’ve highlighted guidance around some of the more common items that our clients are experiencing related to these matters.

Refund More Than Expected

If you are lucky enough to have received your tax refund already, you may have noticed that the refund amount is more than the refund you claimed on your tax return or you may have received an additional check without a description. This may be because the IRS has paid some interest on your refund. The IRS announced that interest will generally be paid from April 15th, 2020, until the date of the refund, even though the filing deadline was extended to July 15th, 2020. While you may enjoy getting that extra bit of cash in your pocket, note that this interest is reportable as income in the year received and you should receive a 1099-INT form from the IRS for any interest paid in excess of $10.

IRS Payments Not Cashed / Notices Received

Now that the July 15th deadline is behind us, we have seen an influx of notices from the IRS indicating that taxpayers owe the amounts due as shown on the returns they filed along with late payment penalties and interest. These notices are particularly common with respect to 1041 filings (tax filings for trusts and estates.)

The IRS has acknowledged that these notices are autogenerated and that they are behind in opening the backlog of mail, including taxpayer payments for their filed tax returns. The IRS has issued the following guidance in their IRS Operations During COVID-19 statement:

“If a taxpayer mailed a check (either with or without a tax return), it may still be unopened in the backlog of mail the IRS is processing due to COVID-19. Any payments will be posted as the date we received them rather than the date the agency processed them. To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them.

To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing. However, interest and penalties may still apply.”

Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending. See www.irs.gov/payments for options to make payments other than by mail.

Form 941 Penalty Notices

IRS Notice 2020-22 was intended to allow employers to reduce their employment tax deposits based on their anticipation of claiming new sick and family leave credits or employer retention credits.

Because of reducing their tax deposits in accordance with this notice, some employers have received notices stating there is a ‘failure to deposit’ penalty being assessed on Form 941 where the credits were claimed. The IRS has announced that a small population of employers may have received these notices as a result of a programming glitch and that they are taking action to correct this matter as soon as possible.

The announcement goes on to state that: “Employers that have recently received these notices do not need to take additional actions at this time. To avoid future receipts of these notices, please check IRS.gov/form941 for future guidance on reporting liabilities when reducing deposits.”

If any of these matters have impacted you or your business, BMF Advisors are here to help you plan the best outcome for your situation.

Visit our COVID-19 Resource Center for information and additional resources for you and your business.

About the Authors

Jessica L. Tepus
CPA
Senior Manager, Taxation Services

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