How the IRS can avoid tax deadline confusion in disaster areas

First, the IRS extended payment deadlines to taxpayers in areas of eight states that were declared disaster areas. Then it sent “notice and demand” mailings to the same taxpayers, saying their payments were due right away, along with the threat of interest accrual and penalties.

Those Notice CP14 mailings to over 1 million taxpayers included a paragraph near the end of the notice “that essentially says never mind — ignore the first three pages you just read,” National Taxpayer Advocate Erin Collins said in blog posts this week.

That language buried at the end of the mailing did not help, she said, leaving taxpayers and practitioners “wondering why they are receiving a balance due notice since they live in a disaster relief area and had months of additional time to pay.”

The IRS is sending follow-up letters to over 1 million taxpayers who filed their returns early from disaster areas in Alabama, Arkansas, California, Florida, Georgia, Indiana, Mississippi, and Tennessee. The follow-up letters acknowledge that the payment is not due until the date specified in the disaster declaration for their area, either Aug. 15 or Oct. 16.

After the AICPA and the California Society of Certified Public Accountants reached out to the IRS on June 6 about erroneous notices sent to taxpayers in California, the IRS clarified its position on June 7. It said on June 28 that it would send the follow-up notice.

Collins recommended congressional action for a permanent change to avoid this situation and that the IRS reprogram its systems to delay the issuance of the notice. She also suggested a short-term solution to include a first page to the Notice CP14 mailing that explains that the IRS is sending the notice to comply with a legal requirement but that the deadline stated in the disaster declaration still applied.

“If the IRS puts that language on page 1 in large type instead of on page 4 in small type, it could avoid much of the confusion,” she said.

In a statement issued in late June, IRS Commissioner Danny Werfel acknowledged the problem and said the agency was taking steps to rectify it. “We know our initial mailing caused confusion for taxpayers and tax professionals, and we worked quickly to send a follow-up reminder to help reassure people,” he said.

The IRS sent the Notice CP14 because of the Sec. 6303 requirements regarding the initiation of the collection process even though taxpayers in declared disaster areas are not required to pay until the postponed deadline, Collins said.

She recommended that Congress change the Code so that IRS does not have to send the Notice CP14 until the extended deadline. “We need to resolve this issue across the board rather than one disaster at a time,” she said.

AICPA advocacy

The AICPA Disaster Tax Relief Task Force recently supported two federal disaster-relief bills: the Filing Relief for Natural Disasters Act, S. 1815 and H.R. 3861, which would extend the IRS authority to grant tax relief following state declared disasters and states of emergency and would expand the mandatory federal filing extension from 60 days to 120 days; and the Casualty Loss Deduction Restoration Act, H.R. 4539, which would repeal the 2018–2025 suspension of personal casualty loss deductions not attributable to a federally declared disaster, subject to a maximum deduction of $50,000 per year. The proposed legislation would also extend the period of limitation on filing a claim for credit or refund of tax because of a deductible personal casualty loss for tax years 2018–2025.

As part its tax legislative compendium to Congress, the AICPA suggested 11 recommendations for permanent and uniform provisions to aid taxpayers in disaster relief situations, and it has submitted comments to Treasury and IRS requesting that the Service apply the relief given in Notice 2023-21 regarding the lookback period for allowing tax credits or refunds to all federally declared disasters.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.