US tax professionals are keenly aware of the negative impact of the COVID-19 pandemic has had on the Internal Revenue Service (“IRS”) and its processing of returns, payments, and other documents. The delay has been so severe that at the end of 2020, there were still many million pieces of unopened mail and well over a million unprocessed returns. Anecdotally, many tax professionals, including our firm, have seen delays of many months for items that would ordinarily take only a few weeks to receive a response.
With the end of the 2020 tax filing season, the backlog of unprocessed returns resulted in approximately 260,000 taxpayers receiving “CP59” notices that their 2019 tax returns had not been filed. Besides the obvious confusion and anxiety receiving such notices creates in taxpayers, the backlog also prevents affected taxpayers who need to request an installment payment agreement to pay the outstanding tax balance for the 2019 and possibly the 2020 tax years because installment agreements are not available for taxpayers with unfiled returns.
The backlog had become so egregious that on February 17, 2021, both the Democrat and Republican leadership of the House Ways and Means Oversight Subcommittee separately asked the IRS to address the backlog of 7 million unprocessed 2019 income tax returns and the reported 260,000 Americans who received CP59 notices advising taxpayers of missing 2019 tax returns.
In response, on February 18, 2021 the IRS released a statement about the CP59 notices:
Earlier this month, the IRS issued notices to approximately 260,000 taxpayers stating they haven’t filed their 2019 federal tax return. These notices, referred to as CP59 notices, are issued yearly to identified taxpayers who have failed to file a tax return that was due the prior calendar year (Tax Year 2019). Due to pandemic related shutdowns, the IRS has not completed processing all 2019 returns at this time. Therefore, the CP59 notices should not have been sent because some portion of the recipients may actually have filed a return that is still being processed. People who filed their 2019 return but nevertheless received the CP59 notice, can disregard the letter and do not need to take any action. There is no need to call or respond to the CP59 notice because the IRS continues to process 2019 tax returns as quickly as possible. The IRS regrets any confusion caused by this mailing.
The IRS encourages those who have yet to file their 2019 return to promptly do so.
On February 23, 2021, IRS Commissioner Chuck Rettig testified before the House Appropriations Subcommittee. During the hearing, Commissioner Rettig addressed the status of the backlog (at its height) of 20 million pieces of unopened mail relating to the 2019 filing season. As of February 23, 2021 Commissioner Rettig has indicated that the backlog is now “current.” From Commissioner Rettig’s further testimony, he indicated that 6 million returns that are now being processed. Of the 6 million returns being processed, the IRS is waiting for further information for 5 million returns, which is a “few million” higher than previous years.
While Commissioner Rettig presented an optimistic status for the IRS at the beginning of the 2021 filing season, the IRS is still clearly recovering from the impact of COVID-19, the two economic impact payment actions (and likely a third over the next few months), and potentially also from 2019’s government shutdowns, all with most of the IRS’s employees continuing to work remotely. As of Commissioner Rettig’s testimony on February 23, 2021, the IRS has no present intention to extend 2021 filing season as was done last year. Anecdotally, we and other tax professionals continue to see severe delays with the IRS’s processing of returns, especially for any return filed by mail, but also including electronically filed returns.
The cumulative effect of these facts would lead us to expect continued delays as we begin the 2021 tax filing season. To minimize delay or potential confusion during the 2021 filing season, we recommend taxpayers take precautions to document when the returns or payments were submitted, especially when not paying or filing electronically.
Internal Revenue Code section 7502 codifies the common law “mailbox rule,” under which a timely mailing is deemed to be a timely filing or a timely payment. The mailbox rule specifically applies to registered US mail, but extends to certified US mail. Because these services are not available to US filers outside the US, the IRS has identified under the authority provided under section 7502(f) to identify private delivery service that will be deemed to be the equivalent of registered or certified US mail for purposes of the “mailbox rule.” The IRS’s most recent list of authorized private delivery service providers is stated in Notice 2016-30). (Please note that if the mailing is not timely, the mailbox rule does not apply and the date of filing or payment will be the date of receipt.)
US tax return filers who are outside of the US should take every precaution to document their payments and filings with proof of mailing just in case the backlog continues into the 2021 filing season.