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IRS Admits ‘Systemic’ Problem Led It To Send Erroneous Unpaid Tax Notices To Married Couples

Yesterday the IRS issued a statement acknowledging that “some payments made for 2021 tax returns have not been correctly applied to joint taxpayer accounts, and these taxpayers are receiving erroneous balance due notices (CP-14 notices) or notices showing the incorrect amount.”

The problem started being reported by tax professionals on social media in early June. By early July the issue appeared systemic (at least to the tax pros) ,but it remained unclear whether or not the issue would be determined to be an actual systemic problem that the IRS would attempt to resolve. The statement issued yesterday both provides information for affected taxpayers and gives some insight into what may have caused the problem.

Generally, the misapplied payments were made by the spouse (second taxpayer listed) on a jointly filed return. And most of the time the misapplied payments were made using an electronic payment method. The IRS acknowledges, however, that “some other taxpayers may also be affected outside of this group.”

The good news for taxpayers and tax professionals is that the IRS has advised that taxpayers do not need to take immediate action (or call the IRS) to respond to the incorrect notice. “Taxpayers who receive a notice but paid the tax they owed in full and on time, electronically or by check, should not respond to the notice at this time. The IRS is researching the matter and will provide an update as soon as possible. Taxpayers who paid only part of the tax reported due on their 2021 joint return, should pay the remaining balance or follow instructions on the notice to enter into an installment agreement or request additional collection alternatives.” The statement also notes that once the update is in place and the payments have been properly applied to the taxpayers’ account, penalties and interest will automatically be removed.

At the end of the statement the IRS details potential causes of the problem and acknowledged that the payments could be misapplied if the electronic payment was made by the spouse and the payment posts “before the joint return indicator is present to identify the primary taxpayer.” In other words, for taxpayers who e-filed and paid on the same day and the payment was made by the secondary spouse, if the payment posted before the IRS system “posted” the return (and indicated it was a joint return and identified the primary taxpayer) the system didn’t know that the spouse’s payment belonged with the jointly filed return.

One hopes that the planned updates will not only address correcting the misapplied payments but also ensure that this problem does not occur during filing season 2023. Otherwise, the best option for taxpayers and tax professionals may be to attempt to ensure that the return is filed and processed a few days before the payment is made. Unfortunately, that is not always possible in this highly deadline-driven industry.