After several months of the IRS being closed for all except the most mission critical functions, the service is open again, at least in part. Many taxpayers have received computer generated letters mailed after the due date. Others who have tax problems, such as past due returns or payments have been in limbo.
The IRS faces literally tons of mail bags to open and sort. This mail includes paper-filed returns, mailed in checks, powers of attorney and a host of other correspondence. Their phone systems are back, but not at 100 %. Collections are beginning. Of course, this leviathan does not start up like a sports car. It is more like an overloaded tractor-trailer going uphill.
What this means to the taxpayer depends on their standing with the service. If all their returns have been filed and accepted and they have no issues currently with the service such as overdue taxes or an ongoing audit, it is a nonevent. However, for the taxpayer who has a tax issue, this is incredibly significant.
The shutdown was a reprieve to a certain extent, but that reprieve is over. Hopefully taxpayers who had tax issues used the reprieve to do what they could, complete tax returns, work with professionals to prepare to deal with the issue once collections is open. If back tax returns were prepared and paper filed, the taxpayer should be looking for evidence of it being received whether it be a cashed check or a return receipt from the Post Office.
For some taxpayers, the paperwork for a Currently not Collectible or Offer in Compromise should have been done. Now is the time to look at where the family or business financials are right now, but what they will look like in three to six months. These are critical elements in building a case for relief for the IRS.
If you are one of the thousands of taxpayers who are considering bankruptcy in light of the economic contraction and the dim prospects for future, remember to determine the impact on any tax debt. Bankruptcy will not forgive all tax debt and will increase the statute of limitations or time the IRS can attempt to collect back taxes, interest, and penalties. Your tax professional will be able to educate you on the impact of a bankruptcy on tax debt. Sometimes postponing filing the bankruptcy by just a few days can significantly impact your tax debt and thus your total debt.
It has been a very tough several months and it will be a tough rest of the year. Now is the time to talk to your advisor team to plan the rest of the year. A critical part of that team is your tax advisor. Stay safe.