The letters that the Internal Revenue Service has been sending to taxpayers about the amounts they received on advance payments of the Child Tax Credit may have outdated information.
The IRS began sending information letters to taxpayers last month about the expanded Child Tax Credit payments and asked taxpayers to save the letters to use when they fill out their 2021 tax return. However, in conjunction with the start of tax season on Monday, the IRS has relaunched a revamped website for the Child Tax Credit with up-to-date information on the amounts to put on their tax returns. Taxpayers and practitioners are being asked to use the information they find in on the site and in their online taxpayer accounts. Letter 6419 may contain outdated information, especially for taxpayers who have moved or if their checks or direct deposit payments were undeliverable, or if they changed bank accounts.
“If taxpayers have questions or concerns about the information in their letter, they can also go to IRS.gov and look on their online account and look for the information on IRS.gov,” said Ken Corbin, chief taxpayer experience officer at the IRS and commissioner of the IRS’s Wage and Investment Division, during a news conference Monday. “We are still looking into some of the information we’ve heard about the notices not being correct. We do not believe this is a widespread problem, and as soon as we get through looking at that, we’ll put some more information out that will be helpful to the taxpayers and to you to share back with them.”
Leaders of tax professional organizations have been warning the IRS about the problems they are seeing, especially with automated penalty notices going out to taxpayers when the IRS is still dealing with a backlog of millions of unprocessed tax returns.
The problem with the incorrect Child Tax Credit letters is likely to add to the headaches of what is already shaping up to be a challenging tax season. The IRS stopped sending the advance monthly payments on the Child Tax Credit after the final payment on December 15. Congress remains at odds over whether to extend the payments this year by passing the Build Back Better Act, which is currently stalled in the Senate.
“How big of a problem will this be?” said Steve Mankowski, co-chair of the National Conference of CPA Practitioners, during a press conference Tuesday to discuss the concerns of a coalition of accounting and tax practitioner organizations about IRS backlogs and automated penalty notices. “At a recent IRS meeting, they came out and told us they started sending these letters December 14, which was one day before the December 15 payments were being made, so that data wasn’t even on the letters that were sent out. I believe it was around 50 million that were being sent out all told. There’s a significant portion that doesn’t include the December information, and then there’s always the issue of parents that may alternate children in different years. Some may have gotten the money, and some may have gone to the wrong partner, so there’s a lot of issues potentially at hand here.”
It’s unclear how many taxpayers and preparers will know about going to the website for the updated information when they are told to rely on the information in the letters they have received in the mail. Taxpayers may need to follow the complicated new procedures the IRS is requiring for accessing self-help tools and taxpayer accounts, which now involve sending a government document like a passport or a driver's license and a selfie of the taxpayer.
“It’s really difficult to gauge how much the site is going to be used because there’s a lot of issues with logging onto the site,” said Mankowski.
The IRS may now need to send out a follow-up letter or at least get the word out to the tax professional community about the problems.
“I think here is an opportunity where something went wrong and some of the letters are wrong,” said Larry Gray, government relations liaison at the National Association of Tax Professionals, during the press conference. “The question being, is there an opportunity for the IRS to communicate the issue because right now the chances are there are going to be more errors? If I’m a taxpayer and I look at my bank account, that may not be correct. The Letter 6419 might not be correct. To know what the answer is this year, unlike in prior years, I can go out to a taxpayer account. I still have to go through validation and there will be the actual answer. My biggest concern is people not realizing the letter could be wrong. What’s the IRS doing? They know the population. What are they doing to send out a follow-up letter or a follow-up communication to stop creating a bigger backlog in the coming season? The people that get this need it. It’s for children. It’s not big corporate America. These are live people in real-town America, so I think there’s an opportunity that could be missed through effective communication to a known population.”
Earlier this month, the coalition of 11 accounting and tax professional groups sent a letter to the IRS urging it to discontinue the automated notices, offer reasonable cause penalty waivers, align requests for account holds with the time it takes to process penalty abatement requests, and provide taxpayers with targeted relief from penalties. The group includes the American Institute of CPAs, Latino Tax Pro, the National Association of Black Accountants, the National Association of Enrolled Agents, the National Association of Tax Professionals, the National Conference of CPA Practitioners, the National Society of Accountants, the National Society of Black CPAs, the National Society of Tax Professionals, Padgett Business Services, and Prosperity Now.
The coalition of accounting and tax groups is hoping the IRS will be more sensitive to taxpayer service issues despite the many challenges the agency is facing this tax season with the pandemic, staff shortages and funding shortfalls.
“We’re asking the IRS to take a common-sense approach to customer service,” said Guylaine Saint Juste, president and CEO of the National Association of Black Accountants, during the press conference, which was held on Zoom. “The taxpayer ultimately is the client, and I think we can all agree, either our businesses or our associations represented in these Brady Bunch squares, if we operated in this way, we would be run out of business. No one at the IRS is out of business. What we are asking for, though, is a commonsense approach to good customer service, taking care of taxpayers, particularly the most vulnerable communities, so that they have access to the resources that they need and can make sure they comply with the law.”
The IRS has been having an especially hard time with processing paper tax returns. “With COVID, we saw an influx of people trying to get relief for the EIDL [Economic Injury Disaster Loans] or the PPP [Paycheck Protection Program],” said Salome Tinker, chair of the AICPA Diverse Organization of Firms Advocacy Committee. “Some of them we had to bring them into the fold, if you will, of compliance, which required them to file not only their current tax return, but also back taxes. Part of their back taxes might have only been filed with paper, and we found cases where some of our constituents didn’t get the money because the back tax that was needed to qualify for EIDL or PPP didn’t get processed because the tax return didn’t get processed. We would think that if the IRS could put more systems in place to fix the problem of relying on paper, that would also help.”
Technology may be a barrier for many parents who may have to rely on the Child Tax Credit web portal to get the correct information about their advance payments.
“If you look more broadly at the minority community, the Black and Brown and Asian communities across the United States, we’re in a perfect storm,” said Jina Etienne, chair of the National Society of Black CPAs. “All four of these recommendations can help with that. Those who are lower income are more likely to be our gig workers and 1099 contractors. We know they have more complicated tax returns. The relief provisions are inherently complex and they often require assistance and support. Many of these taxpayers, as many as 40% of their tax returns are prepared by themselves. Oftentimes they don’t have access to the technology to be able to e-file. We know that as many as 60% of minorities are unbanked in the United States, which can create complexity on top of that for things like direct deposits and electronic payments. The various concerns affecting these minority communities can be addressed and resolved significantly by adopting the recommendations that are being made here. The impact of penalties, the ability to follow up, simply calling the IRS for assistance for someone in one of these communities, they don’t necessarily have the capacity to stay on hold for as long as two hours because of their job, because of their situation, because of their access to technology. The impacts are broad, not only on the minority firms, but on the minority taxpayers across the country.”