IRS Collection Notices Send Taxpayers in Disaster Areas Scrambling

Now, “to their surprise and dismay — and contrary to IRS guidance and press releases — those taxpayers are now receiving ‘notice and demand’ collection letters from the IRS telling them their payments are currently due and the IRS will begin to charge interest and penalties if the taxpayer doesn’t pay” within 21 days, Collins said.

Many taxpayers who live in disaster areas “are confused and frustrated” because the IRS sent them a collection notice and demand for tax payments with an incorrect due date, she said.

The IRS is required to send a notice and demand for payment as soon as practicable, and within 60 days of processing a tax return. “The IRS believes this is true even if a disaster declaration gives you more than 60 days after filing your return to pay the tax,” Collins explained.

Unfortunately, Collins states, “for taxpayers covered by a disaster declaration, the IRS followed its normal collection procedures and mailed an initial collection notice and demand, Notice CP14. These collection notices reflected an incorrect due date.”

The notices provided 21 days (10 days for taxpayers with balances of $100,000 or more) to pay the balance even though payment was not required prior to Aug. 15 or Oct. 16.

In the future, the IRS needs to reprogram its systems to delay the issuance of the notice, “assuming the IRS continues to believe it must send the CP14 notice,” Collins stated.

Collins added that she “strongly” encouraged the agency to include “a first page that says, in large type, that it is sending this notice to comply with a legal requirement but that taxpayers living in a disaster area have until the date specified in the disaster declaration and will not face interest charges or penalties if they pay by the postponed date.”

Jeff Bush of The Washington Update told ThinkAdvisor Tuesday in an email that he’s “not surprised by the sending of confusing required payment date notices. The tax code is very complicated, the Service’s systems are antiquated, and it’s culturally assumed by the Service that a taxpayer reads an entire form, notice, etc., to understand what is expected of them. So, from the Service’s perspective, page 4 is as effective as page 1.”

The IRS, Bush added, “has long needed an upgrade in technology. The Service is woefully behind and, as a part of the $80B [budget boost] passed in the Inflation Reduction Act, is directed to upgrade its systems to something from this century (literally).”

With the additional funds, the IRS, Bush added, is ”hiring additional staff in customer service, processing, and enforcement along with the technology hires.”