Your Money, Your Future
Your Money, Your Future

Got a notice from the IRS saying you owe? Don't panic just yet

Key Points
  • As the IRS works through a massive pile of mail, some taxpayers are erroneously receiving notices for unpaid balances — even though they’ve already written a check to Uncle Sam.
  • At one point this summer, the IRS had 12 million pieces of unopened mail, according to the House Ways and Means Committee.
  • Received a notice? Reach out to your tax professional and have documents ready to show when you mailed your check, as well as whether the IRS has deposited it.
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Some taxpayers are getting a surprise in the mail from the IRS: a notice indicating that they still owe money, even if they've paid.

Earlier this spring, when many IRS workers — as well as many other employees — were told to work from home due to the coronavirus pandemic, the mail began to pile up.

At one point this summer, there were 12 million pieces of unopened mail at their offices, according to House Ways and Means Committee chairman Richard Neal, D-Mass.

That correspondence included paper returns, as well as payments remitted to the federal government to pay taxes owed. IRS workers are now winnowing the backlog.

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Here's the problem: Taxpayers are finding out that money orders and checks they've submitted to the IRS are still sitting with piles of other unopened mail.

"They're freaking out," said Kathryn Morgan, an enrolled agent at Puzzled by Taxes in Haughton, Louisiana. "For many, the payments are sitting in a tractor-trailer full of mail.

"The IRS still has a huge mail backlog."

Indeed, one of her clients filed his 2019 income tax return online but chose to send a cashier's check to the IRS. The bank writing the check said it had to be used within 60 days, so by the time the agency got to it, it was expired, said Morgan.

"He had to get another cashier's check and the whole time he's accruing penalties and interest," she said.

An accumulated backlog

The Internal Revenue Services offices in Washington, D.C.
Adam Jeffery | CNBC

Lawmakers have called on the IRS to temporarily halt sending notices to filers who may be caught up in the backlog.

"Instead of sending potentially erroneous notices, [House Ways and Means chairman] Neal suggested the IRS establish an online portal for taxpayers to alert the IRS that they previously had mailed their tax payments," the committee said in an Aug. 19 statement.

"These notices impose unnecessary stress on taxpayers who, upon receipt, must contact the IRS for assistance," Neal said.

The IRS is aware of the backlog and will process mailed payments as of the day they were received, rather than the date they were processed, according to an Aug. 13 notice from the agency.

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Taxpayers who had a check go stale in the IRS mailroom will get relief from bad check penalties, provided the check was received between March 1 and July 15 — the deadline for 2019 income tax returns and payments.

"Although we do say, 'interest and penalties may still apply,' and there are some situations where that's true, it's not going to be the case for individuals who file on time — by July 15 — and pay the full amount due," said Eric Smith, a spokesman for the IRS.

Call your tax pro

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Your tax professional can help you coordinate with the IRS and try to track down your payment.

A few things can help smooth that process. For instance, if you sent your paperwork via certified mail with a tracking number, you should be able to confirm the taxman received it.

You might also need to track down your check and see if it's been deposited. "If it's been cashed, we'll need a certified copy of the check," said Morgan at Puzzled by Taxes.

Avoid canceling the payment, even if it's sitting in the IRS's mail backlog. If you cancel the payment, the agency will hit you with a bad check fee.

"We're telling clients to see if their check has cleared," said Morgan. "If it hasn't, sit tight, and don't freak out about the letter. Give it a chance to get processed now that the IRS is open again."