Handling IRS Notices Like a Pro

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roher Harris: Hello again everybody. This is Roger Harris, along with Annie Schwab, and it's time for another federal tax update podcast. Annie. Welcome back. How are you doing?

Annie Schwab: I'm doing great, Roger. How about yourself?

Roher Harris: Good, good. You're getting ready for a busy summer. Any exciting plans for the summer?

Annie Schwab: You know, my kids are going to sleepaway camp, so I am going to take advantage of that whole week to be kid [00:00:30] free. And that's going to be the highlight of my summer, I think.

Roher Harris: Yeah, sometimes doing nothing is the best kind of vacation. Well, because it is heading into summer and tax season has, quote, ended at least the April 15th. Part of it has ended. One of the things that happens after tax returns get filed is notices start coming out.

Annie Schwab: That's right.

Roher Harris: And some are relating to the current tax return and others because we went [00:01:00] through this Covid time when notices were delayed and those are starting to show back up again. So we thought it would be a good time to talk a little bit. Some of this is not going to be necessarily new. You know, in terms of all of you have probably seen IRS notices, but we're going to take this and twist it into a little discussion about some online accounts that the IRS has set up, because it may, uh, talk about how you deal with notices. And actually, we'll talk about a milestone that the IRS announced with regard [00:01:30] to online accounts when we get there. But so today we're going to spend a little time about notices. So, Annie, why don't you again, some of this is going to be basic that I'm sure most of you know. But if you don't this will be helpful. Talk a little bit about just kind of why do you get a notice. What are they addressing? What are some of the more common now? There's there's we're not going to cover every notice that the IRS sends out. We're going to talk about the more common ones. But normally what [00:02:00] why does someone receive a notice.

Annie Schwab: Well the IRS does send correspondence out. It can be in the form of a notice. Or it could just be a letter. Um, most common I would say is if you have a balance due, or perhaps the IRS changed something on your return or the amount of your refund has changed. Sometimes it can be just to like, you know, prove your identity. Um, or, you know, it could be a delay in the process and they're just notifying you. Um, each of these correspondence have a notice [00:02:30] number, um, or like a letter number. And from that letter number you can Google any of these and you will get a description on the IRS website about, you know, what is the purpose of this notice. When do you have to respond? You know, what does it mean. And the notices are pretty clear generally two pages. And you know, it says we're writing you to you know, about X tax year X tax form. Um, if you agree if you don't agree this is this is kind of the [00:03:00] process a lot of clients get I don't know nervous you know. Oh my gosh I love getting an IRS notice. What am I going to do. Most of them are are nothing to be scared about. It's it can be just general correspondence, simple things to respond to. Um, you know, it's nothing to freak out about.

Roher Harris: No. A couple just kind of general comments. Number one, you're right. Um, most of them aren't anything to freak out about. But I will say, at least [00:03:30] recently, I have found that most of the notices there was a time that a lot of times those notices weren't correct and we had to go in and, you know, fix it. But they're more accurate than not. Now, most of the times when you get a notice, you kind of go into it saying, well, they're probably right now I got to figure out why they're right. And yeah, what happened? The other thing, just as a general piece of advice, and you can go to the IRS website and see these, each notice has series of notices. In other words, there's [00:04:00] the first notice, the second notice third, you know, however long they go. Right. It's really important from our perspective to get that first one, because that's where all the information that we're going to need to be able to look at it and, and make any decisions about how to proceed or what to tell the client really is in that first notice. So yeah, don't ignore those.

Annie Schwab: Yeah.

Roher Harris: Don't know. Make sure your comments because a lot of times the client will come in with the third notice and say, this is the first one I ever got.

Annie Schwab: Right. There's the only [00:04:30] one I opened. Yeah. All the other ones came out before.

Roher Harris: Um, you know, you probably got first or second notices. And again, we'll talk some about IRS accounts later and how that helps it. But you really need to make sure clients bring you that first notice. And you need to know the series of notices so you know when you get it. Sometimes it's obvious that it's the notice because it says, we already sent you one of these and you ignored it, so.

Annie Schwab: You're not responded. So we're sending this pretty obvious.

Roher Harris: But sometimes it's it's to the client particularly. They don't [00:05:00] know the difference in the first, second or third notice, but you're going to have a hard time resolving an issue if it's not. Not that first notice where all the information is, the detail is detailed. So um, again go to the IRS website if you have questions and you can actually see for each notice what the series is. So when the letter comes or the notice numbers on it and all those sorts of things, you'll you'll be able to identify it. You kind of went through a list of the common [00:05:30] reasons notices are sent. But let's spend a little bit of time talking about the ones that are probably going to be coming out sooner than later, as it relates to the returns that we have just filed. And that's the CPP 2000. So talk a little bit about what that is, and then we'll talk about some of the kinds of issues that can come up with that, and how to reconcile or resolve it. Sure.

Annie Schwab: It probably is the most common notice, at least for me. This is [00:06:00] the CPP 2000 is the IRS notice that I've probably seen the most commonly called the matching notice. And what that basically means is that the information on the taxpayer's tax return does not match information that has been provided to the IRS. So think like W-2, Social Security forms, retirement distributions, types of forms that would be sent from brokerage houses so to say to the IRS. So they're on file. And so the IRS the system someone [00:06:30] it's not even a human going and looking at it. There's a method of matching what we think wages should be. What we think. Um, your retirement plan distribution should be federal tax withholding should be, um, they'll run a match and see something could be missing something could be just, you know, it could be a simple error typo or something. But they'll generate these notices and it's basically just asking you to verify the discrepancies. And I do agree with you, Roger. I do think generally the IRS does have it correct [00:07:00] on file. You know, the client perhaps forgot to give you a 1099 int or has several brokerage accounts and let's say one was amended or updated.

Annie Schwab: So the IRS will get that stuff on file. And the response time, I mean, they give you 30 days to respond. You can agree or disagree for the most part. If you agree, you don't have to do much. You can just agree. Uh, and, and then of course, if you disagree, you know, providing any sort of documentation [00:07:30] or supporting evidence of, of your position, but like you were saying, a series number. So the CPP 2000 is the initial notice for matching and then the CPP, I think it's 3219 A or something. Just like the follow up notice like hey, we sent you one. You haven't, you know, contacted us. We don't know what to do. So here's like your second, um, so you know, they do give the taxpayer some time. But like you said, that first one has all the detail broken out. Um, and really, most [00:08:00] of the time it's like two columns, like, this is what was reported on the tax return. This is what was reported, you know, to the IRS database. And you can see kind of where the changes are.

Roher Harris: Yeah. And and they're probably right. Like I said, most cases then more cases than not. Some things that you can kind of warn your this is a real problem when we get these updated, uh, brokerage statements and prepared the return with the initial statement, and then later on [00:08:30] the brokers updated it or changed it or corrected it, and there was substantial differences. And so they're putting you on notice that they're they got the second one. And whether you got it or not. Now sometimes you make a business decision. Let's say, for example, that you filed a return and you reported $3,000 worth of interest from a broker statement, and you got to corrected one, and it was 3100 now. You. [00:09:00] It's not you, the taxpayer, not you. The preparer might make the decision that they'd rather have the IRS catch that $100 and send the bill, than to pay you to amend the return to pay the same amount of tax, but save some small amounts of interest. So sometimes the CPP 2000, you should basically just say let it happen, right?

Annie Schwab: Right. And that is actually very common. Um, [00:09:30] the amended K-1 or amended brokerage statement even amended W-2s. I mean, I see still see some of those, um, you know, where the discrepancy is really not that big and it's just easier to let the IRS do a matching notice and generate it, because when you file the amended return, you could get that notice anyway, because they could send the notice before they processed the amended return. So it's just the back and forth. Plus like you said, the taxpayer pays fees to the preparer. Now if it's significant or you're adjusting, let's say like, you know, a complicated [00:10:00] schedule C or there's something that maybe wasn't reported to the IRS that was incorrect, then of course you need to go ahead and return.

Roher Harris: And there's also the occasion. Again, it's probably not a lot of money, but this is where you can kind of clean up some what the way taxpayers think versus the way the IRS. And we think these notices and these reportings are done by Social Security number. So right. If an interest statement has your Social Security number on it, the IRS expects it to still be on your [00:10:30] return. So you you get one and say you left off. I'll use 3000 again, $3,000 of interest income from Wells Fargo. And the client says, oh, that's not my money. That's money put aside for my children. But the account has your Social Security number on it, right. So it's expected to be on your return now. We're not going to get into whether it was the child's income or yours that's, you know, case by case. But you have a choice there [00:11:00] is to either nominee back out that money to the child's return when you file the return or tell the client, I know you think that's your child's money, but it's under your Social Security number. So clients sometimes think they're doing the right thing when they set up accounts or investment accounts. But remember, the IRS is doing all this based on Social Security numbers. So there may be not only dealing with the notice, but going back to the financial institution [00:11:30] and cleaning up something there so that this isn't a reoccurring problem.

Annie Schwab: And it could also be something where it's not necessarily numerical like it could be. There are two tax returns that are claiming the same child. Um, social security number has been compromised, something like that. Or your particular Social Security has been compromised. Um, so, you know, the scammers are good. So it's it could be something like letting you know that, you know, your identity has been compromised, um, [00:12:00] which unfortunately, we see quite a bit. Yeah.

Roher Harris: So when you get these notices, the first thing you want to do is understand where the differences came from. Is it just an oversight which. Right. And it's correct. And then again, you may just want to agree on the notice to the assessment or the proposed assessment that's being made. If it's incorrect, then you got to gather the documentation or whatever you need to build your case for why the IRS is incorrect. Um, [00:12:30] probably may require you to go back to the payor for something because it is possible, I guess, that something was reported improperly or your Social Security number got on something that's not yours or whatever. Right? Right. Um, one thing, Andy, let me ask you this question. Have you ever seen a CP 2000 that said we owe you money?

Annie Schwab: Not very often, to be honest. Um, I mean, I imagine that that they make adjustments. Um, probably just sending it to the next year. So if they [00:13:00] owe you money, they'll probably just apply it to the next year. Um, but in general, it's usually something that has been left off of the tax return that's on file with the IRS.

Roher Harris: So yeah, sometimes if it's something obvious, like you made a payment that you didn't claim, they'll just increase your refund and send you a notice.

Annie Schwab: To pick your check.

Roher Harris: If it requires any thought, you know, like. I'm trying to think of a good example, but something that's not as obvious as a payment because [00:13:30] I always ask. I remember asking the IRS, I said, why don't you ever send a notice out that says, hey, you forgot this or you forgot that, and we owe you money. And and I love their answer. And it's I'm sure it's still there today. If they if you owe them money, they assume you knew what you were, didn't know what you were doing when you filed the return. If they owe you money, they assume you knew more than they did. So they don't worry about it. They just assume, [00:14:00] okay, the thing that they didn't know. So they're just going to accept the extra money that you sent them.

Annie Schwab: So that's one way one way to think about it. Yeah.

Roher Harris: So sometimes if, unless it's again obvious a payment being left off right, right. Or something like that. Um, something that might well, let's say they changed a broker statement in your favor, um, where your interest income went from 3000 to 2900, you probably aren't going to get them a notice [00:14:30] telling you that you overreported by $100. Right? Because again, they're going to assume you knew you had a reason to put something more on the return than you did. So it's kind of a one sided process if you think about it. But I guess if I was the IRS, I would think that way as well.

Annie Schwab: You know, I do see sometimes you get the CP 2000 and the column is blank for the taxpayer. So they're basically [00:15:00] saying, hey, we not we didn't change your return, but we basically are going to file a return for you. And here's your bill because you didn't file. So they take all the information that they have in their database, create basically a return on your behalf, and then send you a notice saying, you know, this is what we have. You gave us zeros. We don't have anything in that column. And then they'll prepare a tax return for you.

Roher Harris: Yeah, that's usually later in the process. I think they call that a substitute for return. So if you haven't [00:15:30] filed I mean I guess if you filed all zeros, I don't know why you would have gone. No. Yeah.

Annie Schwab: No. More like missing a tax return.

Roher Harris: Yeah. If they're missing something, then they just take the information that they have and they propose your tax return and you don't respond in a timely manner to that. That becomes your tax return. That's it.

Annie Schwab: Yeah. And then to change it you actually have to go ahead and amend something that you never really prepared. But the IRS prepared for you I suppose. Yeah.

Roher Harris: And this is sort of off topic, but it's kind of somewhat related. [00:16:00] You know, the IRS in many instances probably knows everything that should be on a tax return, that if you are a couple, two people both get w-2s, um, maybe have some interest income at a bank, maybe owe some mortgage interest, you know, whatever. The IRS pretty much knows what your return should look like. And one of the pushes that has been around a long time has been, why doesn't the IRS just propose [00:16:30] everybody's tax return for the year? And it doesn't work for everybody. It works for a small percentage of the population. Right. But if you. And again, this is kind of off topic, but it's somewhat relevant to what we're talking about. This year the IRS started Direct file. That's huge success. Yeah. In fact they've just announced they're going to make it permanent. Permanent. That means that means permanent as long as the current government's in place, the next government. Yes. So there you go. It's permanent for now. Um, and [00:17:00] this year, when you went in to file your return using direct file, you had to enter all your information. And people were asking them, well, for these types of returns, why can't you just when someone qualifies, just pre-populate it with the information you have and have them basically just sign off on it, verify and um. They're looking at doing that for the kind of returns that can use direct files. So what might work [00:17:30] for direct file for those simple returns could in fact work for this substitute for return. And in fact, it's the same concept really. Basically. Um, it's just sometimes takes longer for the substitute return because some information comes in later. But these returns in direct file are relatively simple. And most of the stuff is, you know, well, most of it.

Annie Schwab: Is just tax forms. So like, you know, think of a retired person, um, you know, Social Security benefits, retirement distributions, maybe a [00:18:00] brokerage account. But all of that stuff is already in the IRS database. There's not much outside of the database. You know, they generally don't itemize, um, things like that. So it could could especially help that age group of population.

Roher Harris: Yeah. And for those of you that, that help businesses or work with small businesses and file W-2s 1099, all these sorts of things, what you've noticed over the last few years is two things a push to do it earlier and a push to do it electronically. [00:18:30] Yep. And that's to make these types of matching processes be better and more. Time in real time, if you will. Yeah. So, yeah. So, um, I don't think you're going to see anything change in that arena. We're going to be asked to file more things electronically. So it's automatically in the system. It doesn't have to be keyed into the system. Right. And move up due date so that the IRS can perform this process sooner [00:19:00] than later. So all these things that we sometimes look at in isolation are really tied together. And, you know, in a different world. Well, okay, this.

Annie Schwab: Yeah, this brings it to the exact point that we were saying, you know, being able to do things online, submitting documentation and, and so, um.

Roher Harris: Yeah, because we're going to talk about online accounts and that's, that's the next thing we're all going to be. Well, we should probably have them already, but we're going to be pushed to them. But let's go back to the notice. So I get one of these. [00:19:30] Talk about our options. I mean, and again, it's going to depend on whether it's right or wrong, what's right, what's wrong. But now we'll talk about this I guess from the practitioner side we assume the client brings us the first notice. They present it to us. What do we do with our client? And ultimately what do we do with the IRS when this notice shows up? Well.

Annie Schwab: You need to respond, um, if you disagree especially. But then also [00:20:00] you need to have that conversation with the client so that going forward, there's not a you know, this isn't a repeated thing over and over again. Right? I do suggest that the clients set up the IRS online accounts. It's fairly simple process. You do have to go through id.me, but once established, it's a really great tool for clients to access their their kind of records. So say they brought you the third notice and so you they could go into their account [00:20:30] and see the first two that they overlooked. You could see digital copies of transcripts. Um, you can make payments, you can, uh, view balances. You I think it's going to have actually a five year history, um, of, of sort of your, your tax return, your tax data, which five years is great because we do have, you know, Non-filers, um, you can schedule payments, um, all kinds of stuff. You can respond to notices in there. You can upload files, um, [00:21:00] or supporting documentation so it doesn't have to go snail mail, um, response to notices. So I feel like there are a lot of enhancements this year. And I think we'll see more. Just like you said with direct file, they're going to start connecting and combining the pros and cons of all these different accounts. Um, for the benefit of not only the taxpayer but tax practitioners too.

Roher Harris: Yeah. Um. As we record this today. This is not necessarily obviously when you're listening to it. But interestingly, the IRS is and I [00:21:30] think rightfully so, patting themselves on the back that they put out an announcement today that the one millionth taxpayer uploaded files to them instead of having to send in copies and mail. So, yeah, it's beginning to, uh, to catch on. You mentioned you disagree. So if you disagree now again, every situation is different because it could depend on what you disagree about. But correct. What do you have to file a 1040 x? Do [00:22:00] you just what do you do if you believe you are correct and the IRS is wrong, how do you how should you respond? And uh, so.

Annie Schwab: Definitely read the instructions in the notice because it usually says to, um, provide supporting documentation, include um copies of the notice or the tax return. Um, asking them to consider, you know, in my opinion, the, you know, the tax return is accurate due to blah, blah, blah. Um, if it is and you and [00:22:30] it's accurate, you can also request abatement of penalties and interest associated with the miscalculation.

Roher Harris: Right. And sometimes I know practitioners because again it's going to impact potentially future returns like the process of going through the 1040 x so that their files reflect again, remember something on the return that you initially submitted changed and isn't correct. So now you're going to deal [00:23:00] with the notice. But does that notice and the correction or the dealing with it impact future returns? Sometimes they choose to do the 1040 x even though it's not required, but to get the accurate you got to if you're going to send that in. They do want you to note that it's in response to a CP 2000. So they know that this isn't an amendment because of something you caught. This is an amendment because of something.

Annie Schwab: Oh yeah. So whenever you respond to these, there's [00:23:30] sort of like a standard kind of template for response letter. And you know, it's the date, it's the center, it's the client's name, client identification number, tax year, tax form. And and I generally start mine with, you know, something like dear sir madam I am writing in response to your notice dated blah blah blah CP whatever number it is, um, on behalf of the taxpayer, the Social Security is listed above. Um, this is what you say. This is what we say. We respectfully [00:24:00] request your consideration in the matter. I mean, there's there's some terminology and kind of process to responding to a letter. Um, I mean, there's no right or wrong way, but it is nice when all the information is there, copies of what you're referring is there, and being able to upload it through the portal and not fax or snail mail where something could be separated or moved around, or you're waiting for somebody to put their hands on. It does make a difference. It speeds up the process. It prevents that second notice from automatically kicking out because first response [00:24:30] hasn't actually been. Processed.

Roher Harris: Right? And that's part of the frustration. If you drag too long in responding to that first notice, then the client gets the second notice and they think that as soon as you drop it in the mailbox, the IRS got it the next day and dealt with it. So they come yelling and screaming and said, I thought we dealt with this. So you know there is going to take some time. So again using their electronic tools is going to speed the process up. Sometimes there's [00:25:00] some strategy. Let's assume there's a big difference I mean tens of thousands of dollars. And therefore there's some significant penalties and interest. You know, and I think you alluded to it, you may want to be trying to make a reasonable cause argument for some penalties and, and relief and things such as that. You may even use first time penalty abatement.

Annie Schwab: That's what I was going to say.

Roher Harris: Yeah. And sometimes it's you know, you might want to send them something, you know. So the question is, do I fight that battle [00:25:30] before I send them any money or agree to anything? Or do I send it in and then wait for the subsequent notice and then fight it separately? I don't know there's a right or wrong answer. What I usually try to do is I felt like the IRS was going to be the most friendly to me when I was the most friendly to them. So what I might do, because one of the choices is I partially agree. So I can agree with the tax, but I disagree with the penalty. So I'm [00:26:00] going to send you the tax because I'm not disputing the tax. I'm going to send you the interest because I know I owe it, but I'm not going to send you the penalty, and I'm going to see if it's worth your trouble to come back after it. Come back for me just after the penalty. Um, and sometimes that works, sometimes it doesn't. But, you know, uh, you can partially agree. You don't have to fully agree or fully disagree. You can partially agree. You can agree to some things and some things you can disagree with. [00:26:30] And and you're trying to just develop a strategy. And also again, depending on the amount of money, you may want to stop the interest right from accruing while you're. Fighting, whatever battle you're fighting.

Annie Schwab: And if you agree and you don't have the money to pay, send what you can send by the due date for sure. And if you need to set up an installment plan or some kind of payment plan, um, you know, that can also be requested. So don't ignore it because you can't, you know, you owe ten, but you [00:27:00] only have two. You know, show good faith effort. Uh, respond to the notice timely, send what you can and then figure out how to get the balance down right.

Roher Harris: Okay. We spent a lot of time obviously talking about the CP 2000. So the most common thing we get, um, we get collection notices, we get audit notices, we get all kinds of you mentioned, I think even verifying addresses and Social Security numbers and all that sort of stuff. Um, [00:27:30] any broad advice? I mean, all I'll say this and then I'll ask you what your comment is. Respond. Don't just don't think that by except during Covid when sitting around doing nothing became an advantage because they stopped sending out notices because of Covid, but generally speaking, they're not going to go away if you just ignore these things. No. So the sooner you can get to it and respond, the better. What else? What other bits of wisdom would you. [00:28:00]

Annie Schwab: I do I do think responding timely and including information on there um, there's some benefits of kind language. Uh, like, you know, let's not respond saying, you idiot, you missed this on my tax return, right? Um, there's, you know, respectful, kind correspondence, um, clear and to the point, uh, providing information for them to reach back out to you, which we're going to go over this. I'm going to warn you of some scams here because, [00:28:30] um, IRS only communicates in certain ways. Right? So, but yeah, I think, I think being timely with it, encouraging your clients not to ignore it, not to think it's just going to go away, um, not to wait till the last minute. Um.

Roher Harris: And send as much documentation with as much explanation as you can so that someone you know, we're very familiar with the client. Hopefully the client is familiar with their own tax situation, but that person on the other end that might have to [00:29:00] make a decision about it. They're looking at thousands of these things. So explain as much as easily as as you can, like you said in a friendly manner, and see where it goes.

Annie Schwab: I will say if you send it by mail, always send it certified receipt. Um, it basically postmarks when it was sent because it's super common this year. We've had a lot of, uh, mail issues, um, in the processing centers. [00:29:30] I know Georgia had it, um, quite, quite badly. But this, you know, it's not uncommon for something to just never get there, um, be lost in the mail. And so, you know, do certified receipt when you mail.

Roher Harris: Since you mentioned it, I'll have to comment because it's something that happened to me today. Um, much to my chagrin, I owe Georgia tax this year.

Annie Schwab: Uh huh.

Roher Harris: And so I mailed the check. I want to say middle of April.

Annie Schwab: Okay. [00:30:00]

Roher Harris: Well, not the middle of April because that was a due date. It was about a week before the deadline. To the address that the tax software said to mail it to and all those sorts of things. Today it's it's about two months later delivered back to my mailbox today.

Annie Schwab: Oh no.

Roher Harris: With the check telling me that they couldn't deliver because it was an incomplete address, which was the address, the label that came out of my tax software printed.

Annie Schwab: Oh, man.

Roher Harris: So, uh, [00:30:30] not only did they not deliver it, they sent it back to me and told me the address was insufficient for delivery, which is the same address everybody else in Georgia was mailing these tax payments to.

Annie Schwab: Um, what a mess.

Roher Harris: Fortunately for me, I realized early on that check wasn't going to get there, and I went online like I should have done the first time and paid it. Yeah, but when I saw my mail today, I went, well, this is interesting.

Annie Schwab: You know?

Annie Schwab: Well, you did the right thing by just jumping ahead of the problem and logging in and making the payment [00:31:00] online.

Roher Harris: Oh, I'm going to save that just to show somebody that here it came. Probably two months after I mailed it telling me it was an insufficient address. There you.

Annie Schwab: Go.

Annie Schwab: Unfortunately, I do not think you're the only one.

Annie Schwab: No, no.

Roher Harris: I know I'm not. Let's talk a little bit more about the online accounts. We've talked a little bit about them. I mean, they're they're relatively new. Um. Um. But it's like everything. I mean, if you think about it today, how many things do you do online [00:31:30] that five years ago you did some other way, you wrote checks, you went somewhere. But I mean, online accounts are just becoming the norm for how we now. Sometimes we don't know. We have an online account. We just know we log in and do something. But behind the scenes, you know, we've set up an account or something. But the IRS now has three different types of accounts, the most common for our clients. And you've alluded to it. But let's focus a little bit more [00:32:00] on it. What is why does a taxpayer want and need an online account and how can we assist them in setting? You mentioned Id.me, which is the right kind of government login authentication. It's not just for the IRS. It'll work for Social Security accounts and veterans things. So it's but talk a little bit about why you need an online account. Remind people what we've already said.

Annie Schwab: Sure.

Annie Schwab: Yeah. It's [00:32:30] very it's free. First of all, um, you can set it up to do. Yeah. Pretty good. We'll take free. Um, you do have to have a cell phone in your name. Um, so that is one thing. And you do have to go through the process of id.me, which is, like you said, an authentication process. But once set up, um, you can access current year records, prior year records, transcripts, notices, make payments, uh, set up payment plans, [00:33:00] review balances, respond like we said to IRS notices. So it's sort of like this database that is nearly up to date. Um, it's going to be very efficient. And it prevents, let's say, the tax practitioner from trying to call or you're waiting on the phone and trying to figure out what's happening with this account. You will probably be able to resolve most issues by logging into your online account as a as a tax payer. Now, taxpayers [00:33:30] could be sitting with your tax practitioner, um, you know, looking to see what what documents have been sent, you know, do the authentication and multi-factor and all that. And you might be able to access information on behalf of your client with their permission, so that you can continue on with the tax return process. You can see what's going on. You can see why the notices are here or dates of things and payments. And, um, so it's something that's beneficial to the taxpayer but [00:34:00] also can be beneficial to their preparer.

Annie Schwab: Yeah.

Roher Harris: And it can really help us in situations where someone comes to us and says, I lost the last year's return. I don't have a copy of it. I went to a scam preparer. I don't know what they did. I don't know if they filed an extension. So the information in those accounts can also really help us when when someone comes to us, you know, and I don't have certain records, I don't know what happened last year. I don't know what my W-2 said or [00:34:30] things. So it's it's for the taxpayer, but it's also really helpful for us. Now, um, again, you're going to need the taxpayer to log into that account, right? There's going to be some multifactor authentication used. Typically they're going to send a code like we've all seen this to our cell phone cell phone. And if we're not there or the client's not there, we're not going to know what that code is. And we're going to get logged back out or so [00:35:00] we need the taxpayers to be present. But once they're there, we can roam around if we can get in it. And so yeah, it's really something that we just need to.

Annie Schwab: And it can be something simple, like just updating. You know, the client moved. Oh, yeah. Let's not get any correspondence to the wrong address. Go into your online account, update your address. You know, I mean, it can be something very simple, but those little simple things, if you're, you know, someone who's getting correspondence from the IRS and you move and you wait six months, who knows [00:35:30] where that's going? Yeah.

Annie Schwab: And we just need.

Roher Harris: To buy into it, not fight it. It's going to continue to get better. Uh, we'll talk a little bit about the Tax Pro account in a minute. And it would be nice. And I think they're trying to resolve this. Yeah. Where if we have a valid power of attorney we could log in and get that same information. But there's some authentication issues that particularly when we get into businesses that we'll talk about. But honestly, I think we should just all accept the fact [00:36:00] that our taxpayers need an online account.

Annie Schwab: Mhm.

Roher Harris: Because there's going to be a lot of problems that we're going to have to deal with that are going to be easier to deal with if the taxpayer has an online account that we can help them either set up or access. When we have a problem because of the information that's there is going to be, uh.

Annie Schwab: I definitely recommend reaching out to clients over the summer. It's another touch point for clients that maybe you only [00:36:30] see through tax season. You know, record a visit, video or set up, you know, basic instructions or send them to a YouTube video about how to do it, um, or ask them to come into the office where you can assist with them, or a member of your staff can assist them in setting up these accounts. It's I think, in the long run, this is where we're going. And you alluded to it. You know, I think sole proprietors probably is going to be like the first kind of business access you have. But then eventually I really hope you can get access to partnerships and [00:37:00] S Corp's. And I understand verifying the owners and who would have access and Social Security numbers and, and all that. But I'm hopeful that we'll see some progress there sooner than later.

Annie Schwab: Yeah.

Roher Harris: They're trying I mean they're obviously very concerned about authentication. And you know, and I get it when you move up into the bigger businesses, that is the right person to authorize stuff. But for many of us, our client is the same person. The business [00:37:30] really aren't separated other than there's a different entity there. One thing, and to the people who are listening to this podcast, if you haven't set your own account up, do that first and you will see how easy it is, and it'll make you much better equipped to help a client set their account up. If you've done yours, you'll also then have the ability to, in your own account, look around and see what's there, and I think it'll encourage you even more to to [00:38:00] want to have clients have it. So if you're listening to this podcast and you haven't set up an online account with the IRS, the first thing you should do after this podcast is start that process. It's going to take a little while because there's some verifications and things you've got to do, but it's kind of hard to advocate somebody else doing something that you're not willing to do for yourself.

Annie Schwab: I agree.

Roher Harris: So I think that's.

Annie Schwab: Good.

Roher Harris: What do you want the tax pro accounts. It's not as sophisticated yet. It's not where, uh, the individual accounts are. But [00:38:30] talk a little bit about, you know, maybe the future of where that could go and what it could do for us.

Annie Schwab: Right. Well, right now you can set it up. They're active.

Annie Schwab: It's there.

Annie Schwab: It's there, it's live. Um, you do need a calf number. So that's something that probably most tax practitioners have. But if not that would be a requirement. Um, and you would be able to view hopefully business individual taxpayer information. You could do things like power of attorneys, um, some authorizations. And like we said, we hope that eventually [00:39:00] we'll have a portal for the entities where you can access, you know, small business access for, say, sole props, but also the entity online portals for partnerships, s corpse, corpse, etc.. Um, so I see it. I see it in the IRS announcements all the time about the enhancements and the testing and the the progress and the money associated to this project. Uh, so I will say, I think the IRS did a great job in the last 12 months. [00:39:30] Um, this tax season was much smoother. So I'm, I'm hopeful that they continue to, you know, move the needle forward. Um, but I guess we'll just have to see.

Roher Harris: Yeah. One of the big things that you can do now in the Tax Pro account, that's that's particularly helpful for those of you that do a lot of representation or have a lot of numbers on file for clients. It's a place you can go in and manage and you can remove calf numbers and get people's, you know, calf numbers, you know, remove yourself from [00:40:00] the responsibility for that. Right. So, so a lot of the interactions that we're going to do or may want to do relating to how we represent taxpayers can be done through the Tax Pro account, probably the least developed. And you've kind of alluded to it is the business account, which would be like the individual account, you know, because hopefully in the future there, you know, we'll be able to because again, a lot of the problems we see in small business are payroll tax related.

Annie Schwab: So yes, you.

Roher Harris: Know, hopefully we'll be able to go into a business account one [00:40:30] day and, and look at how their tax deposits are being deposited. And, you know, dealing with all the issues that we have with small businesses. So it's just going to continue to get better. You know, the IRS is committed to it. And as long as Congress doesn't just completely defund them, these accounts are going to become more and more part of how we interact both with the well, with the IRS primarily, and for our business clients, for our individual clients, and in some instances for our own business [00:41:00] with the IRS.

Annie Schwab: So I think so, yes.

Roher Harris: It's coming.

Annie Schwab: Wouldn't it be nice if you could, uh, have an online account to check the status of your ERC claim? I mean, I had to say it. We haven't even said ERC one time this webinar.

Roher Harris: We'll get to it. Hold on. It's still there. It's not going anywhere. Before we talk about others, the ERC, and whether that's a scam you mentioned, you know, there are. Pretty sophisticated [00:41:30] scams being, uh. Run out there and we can't stop the scammers, but we can try to protect ourselves. And what are some some good guidelines and rules of thumb to say?

Annie Schwab: This may.

Roher Harris: Not be on the up and up.

Annie Schwab: Right. So in general, the when you get correspondence in order to confirm that it is legit, having an online account is great because it's not going to [00:42:00] get in there through a scam. Right. So that is another, you know, push for the online accounts. But the IRS initiates contact through the mail. They do not email you. They do not text you. They do not contact you through social media. Um, on occasion you will see where they will call or come to your home, but that's for probably something that is a tax bill way overdue or several years of delinquent returns, perhaps employment tax [00:42:30] deposit issues related to, you know, collection investigation or criminal investigation. 99% of the time the IRS is going to send you something by mail, and a copy of that should be in your online account, and that's where you go to verify it's legit.

Annie Schwab: Right?

Roher Harris: So again, just just warn your clients to pay attention. You know, be careful if they get a phone call or somebody you know, they were for a while, particularly with businesses, they were knocking on doors and they had to stop that because they were I.

Annie Schwab: Remember. [00:43:00]

Roher Harris: They were getting threatened, you know, uh, the world got a little crazy in Covid and didn't necessarily want to keep doing that. They were their employees were asking them, please don't make us go out there.

Annie Schwab: And.

Roher Harris: Barge in with the IRS.

Annie Schwab: I'm actually glad they they stopped that.

Roher Harris: That was that was a good call. Uh, unfortunately, because it was effective to go out, they were trying to catch these people before they got too far in trouble and try to work with them to get in compliance and make it manageable, but still scary. [00:43:30] Yeah. You can't put your employees at risk. No. Um, got a few more minutes. We have to touch before we leave on BOE and IRC, but what about, you know, late? We're in the middle. We're in summer.

Annie Schwab: Let's just say summer. Summer?

Roher Harris: Yeah. What are some things that we can be doing with our clients or with our own businesses, for that matter? While we're maybe between the lull of April 15th and some of the extension deadlines.

Annie Schwab: Yeah, I have to say it's never too late to to start planning. [00:44:00] And that can be simple. Things like, you know, evaluating federal and state withholdings and making adjustments, you know, if needed. It could be also like one time things like, okay, well, now we're, you know, we're getting married or we're getting divorced or we had kids or we're buying a house or selling a house, um, switching jobs, um, especially over state lines, switching jobs over state lines, um, crypto. I mean, it's still one of those things that, um, clients are, are investing in and may or may not know all the [00:44:30] tax in and outs of it. Uh, there's this is also a good time to check out and make sure that you're either contributing enough or if you think you're contributing too much to like an HSA or an MSA or dependent care accounts or, or any of those types of things, and make adjustments when you wait till the end of the year, the adjustments that take effect are not going to have that big of an impact. Um, so June, July, August is really kind of okay, sit back. Where are we? We're halfway through the year, a little bit more than that. Um, what's [00:45:00] what's changing? What's different? Um, use it as like a consulting type communication. Um, this is, like I said, send something out encouraging them to get their online accounts. I don't know, I guess. I guess it's never too late to start planning. And it's not until the holidays get close that everyone's like you're in planning, but really, you can do year end planning all year in my opinion.

Annie Schwab: Yeah, well, and.

Roher Harris: Sometimes hearing from a client in June can make.

Annie Schwab: Oh yeah.

Roher Harris: Will go a lot better for [00:45:30] them because yeah.

Annie Schwab: Businesses deciding to invest in inventory or equipment or um, you know, hire uh, you know, there's so many things that can always come into play, getting getting communication going between you and the client about their short term and long term goals for their business. You know, talk to your. Who's thinking of retiring, who's thinking of switching jobs or starting their own business or those kinds of things. Um, a lot of that can lead to additional accounting work, payroll work, uh, tax planning.

Annie Schwab: Never [00:46:00] know. Yeah.

Roher Harris: Just sometimes knowing something now you can do something that when you find out about it in March, it's too late.

Annie Schwab: So yeah.

Roher Harris: Communication is important. Um, let me touch on a couple of broad themes. Not a lot to say about some big issues that, you know, are kind of DC related. I guess you mentioned IRC.

Annie Schwab: Right?

Roher Harris: Really, nothing has changed in IRC right now other than the enforcement actions have started. The questions of claims have started. [00:46:30] That's slowing down any processing of legitimate claims. Um, there's been no action on the bill that would have retroactively ended. Irc also extend would have extended the statute.

Annie Schwab: That's right.

Roher Harris: So there's an attempt to relive that. But really nothing has changed. And nothing means they're not sending out a lot of claims. They're they're trying to get better at catching the money before it goes out.

Annie Schwab: Goes out.

Roher Harris: Mhm. So nothing really there. Um beneficial ownership interest. There's [00:47:00] a lot of chatter in the practitioner community and to some extent in the, in the Congress about the poor implementation of the program. But FinCEN seems to be ignoring that. And they're barreling ahead right now. Um, um. The only hope is that something will happen before the end of the year. Um, I don't even think I've told you this, Annie, but there may be a meeting in a couple of weeks in D.C. of all the accounting groups, to [00:47:30] try to come up with some uniform messaging to get the attention, uh, of Congress or the administration or somebody to say, you got to you got to slow this down or delay it until things change. Because I read this morning, I think there's been 3 or 4 new lawsuits filed.

Annie Schwab: I saw I saw that I saw two, I saw two new lawsuits, um, filed and um, you know, basically and requesting it either be, you know, non-constitutional [00:48:00] or that the implementation is so bad that there needs to be a delay because not noncompliance. Um, so they're like you said, there's chatter. I do I do agree with you. I know AICPA has come out and kind of encouraged a delay, um, actually like a one year delay. Pretty good delay. Uh, but I'll be interested to see. I'm glad they're I'm glad they're moving forward with it in DC, because something's got to happen before year end.

Annie Schwab: Because the only person or the only.

Roher Harris: Not a person, the only group that seems to think it's [00:48:30] working well is FinCEN.

Annie Schwab: Uh. All right.

Roher Harris: Nobody else thinks it's working particularly well. And but the problem is, as we all know, we're in the middle of an election year. And anytime it requires on politicians to do anything, it it becomes very. And this one is particularly hard because most of the people who now are against it voted for it when the bill passed. So they got a massage, their message so they don't look like they made the mistake. The first it's I don't.

Annie Schwab: Know, I.

Roher Harris: Keep hoping we'll get a delay and we'll get [00:49:00] some changes, because if not, we're all going to be faced with figuring out what to do in a couple of months because the clock's going to start running out.

Annie Schwab: And the.

Annie Schwab: Penalties are super high. No, I think the intent I mean, the intent is was good. It just, you know, same with the IRC, the attempt, the intent of IRC was great. The implementation not so well. Right.

Roher Harris: And last, the both parties are beginning to put working groups together to consider the fact that we've got the Tax [00:49:30] Cuts and Jobs Act expiring at the end of 25. But that's all nothing, because until the politicians know who controls the levers in Washington, uh, all they're doing is posturing right now. But we're beginning to see some discussion and some chatter of that. And again, I know the Republicans have put together a working group to start analyzing what's good, what's bad. At the end of the day, there'll be some trade offs, some will, some stuff will stick, some will [00:50:00] get changed, some will go away. Too early to tell, but it's going to be an interesting, uh, tax world after this election.

Annie Schwab: I think so too. I think so too. Okay, well, that was a lot of information.

Annie Schwab: A lot of stuff.

Roher Harris: We didn't we didn't spend much time on IRC.

Annie Schwab: So that's getting better.

Roher Harris: Yeah. Any final comments any for for this episode?

Annie Schwab: No. I encourage everyone to encourage their clients to go ahead and set up those online accounts. I think that would be my takeaway [00:50:30] from from all of this. And, and keep an eye out for the notices and just know that there are resources on the IRS website. If you're seeing a notice for the first time and curious about what it means and what to do, there's some helpful links on the IRS website.

Annie Schwab: Yep.

Roher Harris: And for any of you that are listening to this that are going to go to the IRS forum. Oh, yeah. Chicago, Dallas or Orlando, come down to the exhibit hall, you'll see the Padgett booth, and [00:51:00] you'll see Annie or I or both of us there. And we're actually going to have a little table about the podcast and ask you for suggestions about what topics we should discuss. So come by and see us if you're attending one of those three IRS forums. And they start in about a month.

Annie Schwab: So yeah, come find us.

Roher Harris: Come find us. See you in person.

Annie Schwab: That's right. All right.

Roher Harris: We're done.

Annie Schwab: We're done.

Roher Harris: All right, Annie, thanks as always. Thanks for all your [00:51:30] hard work together. Thank you for joining me particularly. Thank you for listening. And we hope that you will join us for a future federal tax update podcast. And go tell a friend. Thanks, everybody.

Annie Schwab: Thank you. Bye.

Creators and Guests

Annie Schwab, CPA
Annie Schwab, CPA
Franchisee Operations Manager at Padgett Business Services
Roger Harris, EA
Roger Harris, EA
President at Padgett Business Services
Handling IRS Notices Like a Pro
Broadcast by