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The Commissioner of the IRS, noted that although the full moratorium on processing claims will end by April or May, they are only processing about 1000-2000 claims per week. That is just a small number given the growing backlog at the IRS. At that rate, the problem is growing each day that goes by and based on current numbers it may be likely that all claims are never processed. It is noted in various sources that there may well be over 1 million claims or more pending. No one at the IRS seems to have an exact count.

Lawsuits have already been filed on processing the claims over the long and excessive delays. What can taxpayers do? Call their Congressional Representatives which have been inundated with calls or bring a refund suit? How about the Taxpayer Advocate? It is still not clear, what the best course of action should be.

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In a recent turn of events, the Internal Revenue Service (IRS) has issued an apology for sending out millions of erroneous bills or notices to taxpayers. It seems that a computer mishap is responsible for this situation, affecting taxpayers who filed a tax return in 2022 and had an outstanding balance. However, this event is more than just an error. It has brought to light the plight of many taxpayers residing in counties affected by natural disasters. These taxpayers have additional time to pay their taxes, a change in schedule that has resulted in significant confusion.

The Extension of Deadlines

Due to the severe winter storms, flooding, and mudslides that occurred at the start of 2023, the IRS announced tax relief for affected individuals and businesses in California. This announcement extended the deadline for filing individual and business tax returns and making tax payments to October 16, 2023. This extension applies to taxpayers across most counties in California.

Well, sort of and only for  late filing penalties  for 2019 and 2020 tax returns and for a very limited time; until September 30, 2022 to be exact.  On August 24th the IRS released Notice 2022-36 “Penalty Relief for Certain Taxpayers Filing Returns for Taxable Years 2019 and 2020.”  In essence, as long as you file your 2019 and/or 2020 personal or business income tax return by September 30, 2022, the IRS will automatically abate (remove) failure-to-file penalties for those two years.  There is nothing else you need to do in order to receive this penalty relief.  That’s a surprise coming from the IRS!

What is a Failure-to-File Penalty?

A failure-to-file penalty is assessed when your return is filed after the due date (usually April 15th for personal income tax returns) or extended due date (when you request a filing extension).  It is calculated at 5 percent per month up to a maximum of 25 percent of the tax liability.  So, the higher your tax liability, the higher the dollar amount of the penalty.  This can add up to thousands of dollars, plus the interest charged on the penalty.

The Offer in Compromise (OIC) program is a valuable

tax problem resolution tool. Taxpayers eligible for an OIC suffer from financial hardship that makes paying the total amount owed and financially surviving impossible. For many, an OIC offers the only path to eliminating tax debt and becoming solvent.

However, the OIC program has come with a requirement that devastates taxpayers living on the edge: They must agree to forfeit a tax refund upon which they depend.

In my post earlier today I quoted from IRS Notice 2021-83 issued on April 9th, which stated that the FBAR filing requirement deadline is still April 15, 2021, and that the Notice made no reference to the automatic extension. However, later that day the IRS quietly updated it to indicate that the automatic extension was still available. There was no acknowledgment that they made an error, they just tried to sneak it in.

The bottom line is Taxpayers still have until October 15th to file their FBAR.

Most, if not all, Payroll Protection Program (PPP) borrowers are focused on the question of whether they will be able to have their PPP loan forgiven.  Many questions have arisen, and some but not all, have been answered by the Loan Forgiveness Application and instructions   released by the SBA on Friday, May 15, 2020.  Here are some of the highlights.

  • Annual “cash” payroll costs are capped at $100,000 per employee. While this is not news, the SBA calculates that this amount on a pro-rata basis for the 8 week “Covered Period” is $15,385. If you do the math, that is equal to 8 weeks per year divided by 52 weeks multiplied by $100,000. Some were hoping that those on a semi-monthly pay schedule could use a larger amount based upon 24 pay periods per year. Apparently not.
  • Alternative Payroll Covered Period. The Covered Period is generally eight weeks (actually 56 days) beginning on the date the loan is first funded. The Alternative Payroll Covered Period is only for employers with bi-weekly or more frequent payroll schedules. Therefore, it doesn’t appear to apply to employers who pay semi-monthly. It begins on the on the first day of the first payroll period following the PPP Loan Disbursement Date and ends 56 days later.  The following example is provided:  Alternative Payroll Covered Period: “… if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the  Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”  This suggests that one cannot include payments for a payroll period that begins before the PPP Loan Disbursement Date but is paid after that date. However, that is inconsistent with the Press Release issued concurrently by the SBA which states that the form and instructions provide “Flexibility to include eligible payroll and non-payroll expenses paid OR incurred during the eight-week period after receiving their PPP loan.” (emphasis supplied).  See more below.

Due to the ongoing COVID-19 Pandemic, the IRS has provided relief to taxpayers by extending filing and other deadlines. Now, in an internal memorandum from Fred Schindler the Director of Headquarters Collection (SBSE), the IRS continues to provide relief to taxpayers with tax debt by suspending most tax collection activities. These changes mirror the previous relief provided by the IRS, and restates the relief contained in the People First Initiative.  Our tax litigation attorneys are advising our clients that they can expect enforced tax collection activities to be suspended unless there is an exigent circumstance including the loss of the opportunity for the government to collect taxes due. The expiration of the statute of limitations is one example.

The importance of the memo is that while it mostly repeats and fleshes out the People First Initiative, it is a direct “order” from the head of SBSE Collection to all Collection Executives. The People First Initiative is a bit more nebulous in terms of its actual impact on the activities of rank and file employees.  The collection activities outlined in the memo include most activities related to the collection process such as meeting with taxpayers, filing new Notices of Federal Tax Liens (NFTL), issuing levies, taking or scheduling seizures actions, and pursuing civil suit proceedings. Automated tax levy programs are also suspended. The memorandum also directs Collections not to default installment agreements for missed payments due between April 1 and July 15, 2020 (the suspension period).  Due to the ongoing and ever changing nature of the COVID-19 epidemic in the United States, the IRS may extend the suspension period and the incorporated relief provisions further.

It is important for taxpayers and their advisors to remember that even though collection enforcement activity will be rare from now through July 15th, once the suspension period ends the IRS may begin filing liens and levies with a vengeance. Our tax lawyers are therefore recommending to our clients that, to the extent practicable, they position themselves to take appropriate action to forestall collection after the suspension period ends. This includes submitting offers in compromise, and requesting installment agreements now.

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