After nearly a year of wondering and waiting, Jeff Mortimer finally found his answer for what was up with the $933 that the IRS claimed he was due after a glitch at the IRS tied up the processing of his 2020 tax return.
It wasn’t the happy ending that he wanted, mind you.
“I didn’t get my money but I don’t have to deal with them anymore,” Mortimer told me.
Mortimer, 76, shared his frustration with the IRS and the unknowns relating to his 2020 tax return late last year. He couldn’t get answers about confusing paperwork that was sent by the IRS to him in January 2022. He didn’t know what was next even after he responded to an IRS notice a year ago. For months on end, he didn’t see any of the refund money or credit that the IRS said he was due.
Millions of people waited endlessly for refunds in 2022. It was the third year in a row that the IRS failed at meeting its responsibility to pay timely refunds, according to the latest National Taxpayer Advocate report to Congress.
At the start of last year, according to the report, the IRS had a backlog of 4.7 million original individual 1040 returns and 3.2 million original business returns.
By Dec. 23, 2022, the IRS data showed that the IRS made more progress in reducing its unprocessed paper backlog to 400,000 original individual returns and about 1 million original business returns.
But not everyone is happy once those returns are processed. Some discover that their refund cash could indeed end up covering old debts.
What happened with that 2020 tax return?
When we initially talked, I suggested that Mortimer contact the Taxpayer Advocate Service, which offers assistance when one is unable to resolve tax issues through normal channels and faces undue hardship as a result of the IRS actions or inactions.
He mailed in Form 911 on Nov. 18 as a last resort. And he got a call from the Taxpayer Advocate Service on Dec. 1. Taxpayers can go to www.taxpayeradvocate.irs.gov and click on the “contact us” tab and hit submit a request for assistance.
It took about a month after connecting with the advocate’s office for Mortimer to discover that yes, he did overpay his taxes by $933 for 2020.
But, no, he’s not going to get that $933 back now.
Instead, he received a phone call from the Taxpayer Advocate Service in the late afternoon of Dec. 27 and learned that the money would go to the federal government to cover federal income tax troubles dating back to 2013. A week ago, he received a letter from the IRS that backed up what he was told over the phone by the Taxpayer Advocate’s office. No check would be in the mail.
The latest IRS notice said that the $933 from the overpayment for the 2020 tax year would be applied to an amount Mortimer owed for 2013 for federal income taxes. He continues to owe a bit more than $200 for 2013.
Mortimer didn’t imagine it would turn out this way. He had hoped that he put an old tax issue long behind him and would be able to benefit from a one-time tax break that applied to unemployment benefits received in 2020. He thought he’d get that money to use toward his other bills.
Fortunately, he said, he had not already mentally spent it.
“One of my first reactions was ‘Oh well, I never had it.’ It’s not like I lost anything,” he said. “I had not earmarked it to pay something. I was probably not absolutely sure that this was going to happen the way things were going, so I wasn’t going to count on it.”
How an old debt snatched a tax refund
Mortimer felt embarrassed that he hadn’t thought about a previous tax headache, imagining the situation was over once it was ruled as “uncollectable” several years ago based on financial hardship. Facing tough times, he sought the help of a tax professional in metro Detroit to get his tax debt into non-collection status.
And while he’d get notices each year, he’d sort of ignore them. The notices, he said, said the IRS was letting him know about the debt but that he didn’t need to do anything. He thought the debt was “uncollectable.”
“It just wasn’t on my mind,” Mortimer said.
When we first started talking about trying to hunt down that $933 in late 2022, I had asked Mortimer if the refund could have been applied to anything else? Maybe back taxes? Or child support? But he said, no, “there’s nothing else it could have been applied to.”
More:IRS tax season to begin Jan. 23: What to know about smaller refunds
He was a little too optimistic about what could happen in the future.
His refund wasn’t yet been applied to any other debt then. His tax return — filed in March 2021 — still was missing in action in the IRS pipeline and had not been processed nearly two years after it was filed. He also filed an amended return in April 2021 and that the IRS apparently had not touched.
After the IRS finally went through the paperwork in late December 2022, Mortimer learned that the $933 wouldn’t be sent to him after all.
He said he paid the $933 because he thought he owed it, when he really didn’t once the new tax break was taken into account. As he recalled, part of the arrangement involving the old tax debt that was classified as “Currently Not Collectible” was that he had to pay his future taxes on time going forward or the special status on the old debt would be revoked.
Refund headaches don’t always end in your favor
Many taxpayers would like to be optimistic about their chances for getting a tax refund but it’s important to know that things don’t always work out as you’d hope.
Sarah Shannonhouse, manager for Tax Practice & Ethics with the American Institute of CPAs, said the IRS may keep — or offset — some or all of a tax refund to pay debt if a taxpayer owes a federal tax debt from a prior tax year, a debt to another federal agency, or certain debts under state law.
Shannonhouse said it’s important to realize that the IRS can attempt to collect taxes up to 10 years from the date they were assessed. The IRS may suspend the 10-year period in certain circumstances. The time the suspension is in effect will extend the time the IRS has to collect the tax.
The IRS won’t suspend interest and penalty charges, even if it stops trying to collect the balance due.
If the IRS ends up treating a tax debt as not collectable, she noted, it doesn’t mean that a future refund couldn’t be used to cover a debt.
In some cases, the IRS may place an account in “Currently Not Collectible” status if the IRS agrees that you cannot pay what you owe in federal income taxes and cover your basic living expenses.
If you request a “Currently Not Collectible” status, the IRS may ask you to provide financial information, to review your income and expenses and decide whether you can sell any assets or get a loan, according to an explainer by The Taxpayer Advocate Service.
While your account is in the “not collectible” status, the IRS generally won’t try to collect from you. It won’t levy your assets and income.
But the IRS will still assess interest and penalties to your account. And the IRS may keep your refunds and apply them to your debt. You’ll also continue to receive an annual bill from the IRS as required under the law.
Typically, the IRS is going to tell you upfront that a refund will be used toward a debt.
The IRS issues most refunds within 21 days if the return is e-filed and the taxpayer opts for direct deposit. You can check the status of your refund with “Where’s my refund?” on IRS.gov or the IRS2Go mobile app.
Several factors can cause the IRS to hold back your refund, such as:
- You have unfiled or missing tax returns for prior tax years.
- The refund check was held or returned due to a problem with the name or address.
- You elected to apply the refund toward your estimated tax liability for next year.
- The IRS is reviewing your tax return.
- Your refund was applied to a debt you owe to the IRS or another federal or state agency.
The Treasury’s Bureau of Fiscal Service can reduce your federal income tax refund and offset it to pay:
- State income taxes.
- Child support.
- Overpayment of unemployment compensation, say in the case of fraud.
- Federal agency non-tax debts, including past due federal student loans. (The pandemic-related pause on student debt payments also temporarily stopped federal tax refunds from being applied to defaulted student debt. Defaulted student loan borrowers get to keep their federal income tax refunds this year, too.)
This tax season, the IRS expects that the refund process could go more smoothly, as much of the paper backlog that built up during the pandemic has been addressed. Some tax breaks — such as the Recovery Rebate Credit — aren’t on 2022 returns and won’t contribute to mistakes that can trigger refund delays.
Even so, individuals need to know that sometimes a refund delay can be resolved but it won’t put extra cash in your pocket.
How long will taxpayers wait for answers in 2023?
The chaos in the tax system only triggered more chaos for the taxpayer for the past few years. Last year’s backlog of paperwork only triggered millions of stressful unknowns for taxpayers.
The agency had 16 million unprocessed returns as of Dec. 31, 2021. That included 3.6 million amended returns; 8.2 million paper returns for individuals, businesses and others, and 4.2 million paper and e-filed returns where processing had been suspended to address possible identity theft issues.
The IRS aggressively tackled the jumble of leftover returns, including a push late in 2022, to put the IRS in a better position for the 2023 tax season. By Dec. 23, the IRS data showed that the IRS reduced its unprocessed paper backlog to 400,000 original individual returns and about 1 million original business returns.
Many times, though, taxpayers ended up flustered, frustrated and confused last year, even after the IRS sent out some notices in early 2022.
Mortimer received paperwork called a CP80 Notice a year ago from the IRS — dated Jan. 24, 2022 — that stated he was due a $933 credit for his 2020 tax return. “However,” the IRS notice stated, “we haven’t received your tax return.”
How the IRS could know what he was owed without receiving his tax return? It all seemed odd, but nonetheless Mortimer was hopeful.
His check for $933 — money that he initially thought he owed before a key tax rule change for 2020 — had been cashed, meaning the IRS did get the 2020 return with that check. Checks are separated from the returns before the return is processed. He still responded to the notice with additional paperwork to back up the filing.
In Mortimer’s case, a big temporary tax deduction people who were unemployed during the economic fallout in 2020 was missed when his tax preparer filed the original 2020 federal return in March 2021. Mortimer ended up paying $933 initially when the original 2020 return was filed but he really didn’t owe it for the 2020 tax year.
He wasn’t the only person to make this mistake.
The American Rescue Plan — which was signed on March 11, 2021, shortly after tax season began — ended up excluding up to $10,200 in 2020 unemployment compensation for individuals from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000. Even if you qualified, amounts of jobless benefits in 2020 over $10,200 for each individual were still taxable.
The tax rules changed shortly after the tax season had kicked off. The IRS later requested that people who had already filed returs not file an amended return if that jobless tax break was the only issue. The IRS would try to correct those mistakes.
More:2023 tax season could be better — but huge backlog of 2022 returns may create challenges
More:IRS tax season to begin Jan. 23: What to know about smaller refunds
On Jan. 6, the IRS said it completed the final corrections of tax year 2020 for taxpayers who overpaid their taxes on unemployment compensation they received in 2020.
The IRS said it ended up correcting about 14 million returns, involving nearly 12 million refunds totaling $14.8 billion. The average refund in that group was $1,232. Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts.
During 2022, Mortimer hadn’t been able to get any information — or the money. He replied the IRS by sending a copy of his 2020 return. He made phone calls to the IRS but couldn’t get through. He contacted me and later worked with the Taxpayer Advocate Service.
It really shouldn’t have been all that hard.
At least now, Mortimer can close the books on his 2020 tax return. Not having to endlessly keep calling the IRS to try figure out what’s next takes one challenge off his plate.
“It’s a little bit of a pay back,” Mortimer says wryly.
Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.
