What has been Going on at the IRS During the COVID Pandemic?
Despite being “closed” during the pandemic, the IRS has not been idle. In addition to sending out billions in stimulus payments, processing 2019 returns and issuing refunds, the IRS has been busy issuing guidance and coming up with new procedures. Here is just some of what has been going on.
I suppose you have to be a tax return preparer or practitioner to get excited at one of the biggest announcements from the IRS which is not COVID related. The IRS will begin accepting electronically filed amended returns later this summer. When the option becomes available only 2019 amended 1040 returns may be filed electronically. Other years and forms will still have to be paper filed, but it is a first step.
If you have filed an amended return and would like to know the status of the return you can do so at https://www.irs.gov/filing/wheres-my-amended-return. This tool will also be available if the amended return is electronically filed.
The deadline to file your 2019 1040 return is July 15. Although you can file Form 4868 and obtain an extension to file until October 15, the IRS reminds you (as do I) that the extension of time to file is not an extension of time to pay. If you owe taxes and do not pay them by July 15, you will incur penalties and interest on the unpaid taxes beginning July 16.
In yet another welcome announcement, the IRS has announced that they have begun processing paper returns although there are delays due to limited staffing.
The IRS issued an update regarding the status of their operations on June 18.
Some tax compliance and IRS phone lines supported by customer service representatives are open at this time, however callers should expect long waits due to limited staffing.
The IRS continues to receive and store mail. Response to correspondence sent to the IRS will take longer than usual. Once normal operations resume it will take the IRS time to work through any correspondence backlog. Correspondence sent to IRS offices may be returned if the office is closed and no one is available to accept it.
All Taxpayer Assistance Centers, and many volunteer tax preparation sites remain temporarily closed. In person Taxpayer Advocate Services also remain closed and the office is experiencing a delay in processing cases due to the limited availability of the IRS.
Taxpayers who received correspondence regarding suspicious returns may now contact the IRS by phone, but service is limited and the wait times are long. It is recommended that identity verification be done online. Taxpayers who need a PIN to file a return must obtain the number online as telephone assistance is not available.
The US Residency Certification program is temporarily suspended.
Applications for recognition of tax-exempt status and determinations for employee plans are being processed. Any paper applications submitted after March 26 are not being processed.
The IRS National Distribution Center remains closed. Any forms and publications must be obtained from the IRS website.
Balance Due Notices
As a result of office closures due to the COVID-19 pandemic, the IRS was unable to mail some balance due notices which had already been issued. The IRS has announced that these notices will be sent to taxpayers in the next few weeks. They have alerted taxpayers that some of the notices will have due dates that have already passed. Each notice will include an insert confirming that the due dates printed on the notices have been extended to either July 10 or July 15 depending on the type of tax and original due date.
The IRS issued a new alert that criminals continue to use the COVID-19 stimulus payment as a cover for schemes to steal personal information and money. The IRS Criminal Investigation unit has already seen scams related to the organized selling of fake at-home test kits, offers to sell fake cures, vaccines, pills and advice on unproven treatments for COVID-19. Other scams claim to sell large quantities of medical supplies through the creation of fake shops, websites, social media accounts and email addresses where the criminal fails to deliver promised supplies after receiving funds.
Other COVID-19 related scams involve setting up fake charities soliciting donations for individuals, groups and areas affected by the disease. Some criminals are offering opportunities to invest early in companies working on a vaccine for the disease promising that the company’s value will increase. These promotions are many times made to look like research reports.
Finally, the Criminal Division has also seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as “Corona Virus,” “COVID-19”, and “Stimulus”. These schemes are blasted to large numbers of people in an effort to get personally identifying information or financial account information to include account numbers and passwords.
Economic Impact Payment (Stimulus): ALERT
The IRS continues to mail out stimulus checks. The IRS also began to send out stimulus payments in the form of a prepaid debit card in late May. Be careful of scams. The card issued by the IRS will arrive in a plain envelope from “Money Network Cardholder Services.” The Visa name will appear on the front of the card. The back of the card has the name of the issuing bank, MetaBank®, N.A.
Due to concerns that many nursing homes and care facilities were taking advantage of patients in their care who had received stimulus payments the IRS issued an alert that the stimulus funds belong to the recipient of the funds and not to nursing homes, nor other facilities providing care to the recipient. Furthermore, the stimulus payment is not to be counted as a source/income for determining the eligibility for Medicaid and other federal programs for a period of 12 months from receipt. The payment does not have to be turned over by the recipient to a care facility.
COVID Related Distributions/Loans from Retirement Plans
The Cares Act waived the 10% early withdrawal penalty for withdrawals from retirement funds made during the period January 1 to December 31, 2020 for COVID-19 related purposes. The withdrawal is subject to income tax, but the taxpayer can avoid the tax by paying the monies back within three years beginning on the date the distribution was received. If the funds will not be returned to the plan, the taxpayer can elect to report the withdrawn funds ratably over a three-year period thereby spreading the income tax liability over three years. In addition, the CARES Act provides that plans may implement relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27 through Dec. 31, 2020, and the dollar limit on loans made between March 27 and Sept. 22, 2020, is raised from $50,000 to $100,000.
As authorized under the CARES Act, the IRS has issued Notice 2020-50 which expands the definition of who is a qualified individual and takes into account factors such as reductions in pay, rescission of job offers, delayed start dates, and other adverse financial consequences arising from the impact of COVID-19. For more detailed information and guidance regarding the law, refer to https://www.irs.gov/pub/irs-drop/n-20-50.pdf
Required Minimum Distributions
The CARES Act enabled taxpayers who are required to take minimum distributions from retirement plans to skip the RMDs in 2020. The waiver does not apply to defined benefit plans. Taxpayers who had already taken an RMD this year had 60 days to repay the distributions. The IRS has just announced that the 60-day rollover has been extended. Taxpayers who have received a distribution of an amount that would have been an RMD for 2020 now have until August 31, 2020 to repay the distribution. Additionally, the repayment is not subject to the one rollover per 12-month period limitation and the rollover restrictions for inherited IRAs. For additional information refer to https://www.irs.gov/pub/irs-drop/n-20-51.pdf
High Deductible Health Plans
A high deductible health plan can temporarily cover remote health care services without a deductible or with a deductible below the minimum annual deductible required by law. These temporary rules apply to services provided on or after January 1, 2020 with respect to plans beginning on or before December 31, 2021. The items which constitute “qualified medical expenses” that may be reimbursed from tax advantage health savings accounts has been expanded and apply to expenses paid after December 31, 2019. For additional information refer to https://www.irs.gov/pub/irs-drop/n-20-29.pdf