Balance Due Notices

A number of taxpayers are receiving balance due notices from the IRS even though they mailed timely tax payment checks.

If you already made a tax payment via check but received a balance due notice from the IRS, your check and the notice likely crossed paths in the mail. The Internal Revenue Service is dealing with a backlog of mail that was delivered earlier this year while many IRS offices and service centers were closed due to COVID-19. The notices are automated, and there was no way for the IRS to stop them.

Here's what you should do if you received a balance due notice:

Determine if your check has cleared the bank

  • If it hasn't cleared, wait another few weeks to see if the IRS processes the check
  • If it has cleared but after the date on the notice, just sit tight
  • If it cleared before the date on the notice, and you are a Delap client, contact your Delap professional

Mystery Money = Refund Interest Payments

If you notice a small unexpected direct deposit or a small check in the mail from the federal government, it's most likely an interest payment on your tax refund.

This year's tax filing deadline of July 15 is considered a disaster-related postponement of the regular April 15 filing due date. When a disaster-related postponement exists, the IRS is required, by law, to pay interest on individual tax refunds, calculating interest from the original April 15 filing deadline to the new postponed deadline.

This week the IRS started sending interest payments, averaging about $18, to about 13.9 million individual taxpayers. Most taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. Everyone else will receive a check.

Interest will be paid to individual taxpayers who filed a 2019 federal income tax return by this year's July 15 deadline and either received a refund in the past three months or will receive a refund.

The refund interest payment is only applicable to individual taxpayers; businesses are not eligible.

NSF and Stop Payment Penalty Waivers

If you mailed a tax payment in the form of a check to the IRS, but the funds were not available when the IRS finally processed your check, read on.

Taxpayers may have run into this situation in one of two ways:

1. Due to closed IRS offices this spring and the resulting backlog of mail and delayed processing of tax returns and payments, some taxpayers stopped payment on their checks – perhaps thinking their checks were lost in the mail.

2. Other taxpayers had non-sufficient funds (NSF) in their bank accounts when their tax payment checks were finally processed by the IRS because they used the funds already – perhaps due to COVID-19-related issues.

In a normal year, if your tax payment check bounces, the IRS would issue a failure-to-pay penalty. But 2020 isn't a normal year.

The IRS has announced that failure-to-pay penalties will be waived.

"To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing," the IRS said in a recent update.

Penalties will be waived if a taxpayer mailed a check that was not processed within 30 days of the receipt date by the IRS and the funds were not available when the IRS processed the check. Penalty waivers should be automatic.

When the IRS receives a piece of mail, it is labeled with a "received date." But the mail, including any check it contains, may not be processed by the IRS right away. Thus, the received date and processed date can differ.

"Any payments will be posted as the date we received them rather than the date the agency processed them," the IRS said. "To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them."

If you receive a penalty notice related to this stating that a penalty has been assessed, contact your Delap advisor.

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