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Preparers dealing with unprocessed 2020 returns, continuing COVID-related complexities and other issues this filing seasonBy: National Association of Tax Professionals
April 13, 2022

After the filing deadlines for 2019 and 2020 were postponed due to COVID-19, tax professionals will be expected to get most of their clients’ 2021 returns to the IRS by the traditional mid-April due date for the first time in three years.

For some preparers, the IRS’s backlog of more than 23 million unprocessed 2020 returns may make it a challenge for them to get some clients’ returns in by April 18—April 19 in Massachusetts and Maine. While some of the unprocessed 2020 returns have refunds or other carryover information that needs to be applied to 2021, the IRS maintains that taxpayers “generally” need not wait until their 2020 returns are processed to submit their 2021 returns.

However, the IRS has said that most individuals who file electronically will receive their refunds within 21 days if they choose direct deposit and no issues are found with the returns.

New legislation resulted in new letters

The federal government’s efforts to minimize the economic impact of COVID-19 has created additional situations that preparers faced for the first time in 2022, including accounting for advance child tax credit payments. The IRS began sending Letter 6419, Advance Child Tax Credit Reconciliation, to recipients in late December 2021.

An additional hurdle for tax preparers is that, for 2021 returns, they needed to fill out and file Form 8867, Paid Preparer’s Due Diligence Checklist, for tax returns claiming qualifying children for the child tax credit even if the return claims no child tax credit after reconciling advance child tax credit payments made in 2021.

Taxpayers who took advantage of the credits should turn over copies of the letter to their preparers so they can be properly accounted for. Taxpayers who did not receive the letters — or lost them — are encouraged by the IRS to visit their online account, which include summaries of the advance child tax credit and third economic impact payment amounts.

The IRS repeatedly reminded taxpayers that both Letter 6419 and Letter 6575 contain information necessary to file an accurate 2021 return. It explained errors that result from a failure to use the information contained in the letters for preparing returns could slow down processing of the returns and refunds.

Revised Form 1040 virtual currency inquiry

Preparers should note the IRS’s revision to the Form 1040 question regarding virtual currencies for 2021. Some taxpayers and preparers were confused by the wording of the question on the 2020 form, which said “At any time during 2020, did you receive, sell, or otherwise acquire any financial interest in any virtual currency?” Many preparers and taxpayers were unsure of whether buying or holding cryptocurrencies should be reported.

For 2021, the Form 1040 question now reads: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” The IRS also addressed the new wording during its March updates to the virtual currency FAQs. It now says that taxpayers whose only virtual currency transaction during 2021 was purchasing virtual currency with real currency can answer the question by checking the “No” box.

Extended filing date for victims of storms and wildfires

The IRS announced that the victims of the December 2021 tornadoes that swept through parts of Illinois, Tennessee and Kentucky will have until May 16, 2022, to file their 2021 returns. The extension applies to the filing of individual and business returns due April 18 and business returns that are normally due March 15 as well as payments.

Additionally, the IRS said victims of the December wildfires in Colorado now have until May 16 to file their individual and business returns and make payments.

Finally, the IRS announced that victims of severe storms, flooding in and landslides in Puerto Rico beginning Feb. 4, 2022, will have until June 15 to file individual returns and make tax payments.

Filing for an extension is still and option

Even though the IRS has kept the filing day for 2021 returns in April for most taxpayers, preparers always have the option of filing for an extension if they need more time to file. The due date for those who requested an extension for filing their 2021 returns is Oct. 17, 2022. As a reminder, the extension only applies for filing the return, to avoid penalties and interest, payments must be made by the April due date. If you need more information on preparing valid extensions, NAPT offers a webinar on the subject.

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2022 tax season going just as preparers predicted, according to survey resultsBy: National Association of Tax Professionals
March 2, 2022

The 2022 tax filing season has proven to be more frustrating, for taxpayers and tax professionals alike, than any previous season. In preparation for the 2022 filing season, the National Association of Tax Professionals (NATP) surveyed its members to gauge tax preparers’ confidence around recent tax law changes and the impact these changes will have on their business.

Overall, survey data indicated NATP members are concerned about the workload and stress for themselves and their employees. Only 13 percent of respondents indicated they think this year will be better than last year.

Members noted they were most concerned about accurate reporting of economic impact payments and advance child tax credit payments, as well as reporting of Paycheck Protection Plan and other COVID-related loans.

Additionally, much of the concern about increased workload came from the assumption that only 4 percent of taxpayers are knowledgeable about tax law changes.

Through conversations with preparers and NATP members, anecdotally, it seems as though tax season is just as frustrating as they predicted, said Jennifer Van Elzen, director of member relations and analytics at NATP.

“Unfortunately, it looks like tax season is going about as well as our members thought it would,” Van Elzen said. “Serving their tax clients has been further complicated by an increase in delays and lack of IRS resources; a persistent effect from the pandemic.”

Van Elzen said the association is working to make members feel confident by offering more resources and education courses to tax pros during tax season than ever before, including blog posts, publication articles and webinars on topics such as preparing the new Form 7203, calculating the earned income credit on a 2021 return, and reporting and reconciling the child tax credit.

For full survey results, or to speak with someone further, please contact Nancy Kasten (nkasten@natptax.com) or Samantha Strong (sstrong@natptax.com).

2022 Tax Season Impact Survey (1)
2022 Tax Season Impact Survey (2)
2022 Tax Season Impact Survey (3)

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Watch: NATP discusses changes to Schedule 8812 for 2021 tax season (Facebook Live replay)By: National Association of Tax Professionals
February 8, 2022

Many tax preparers are facing new challenges during the 2022 tax season related to their clients claiming (or not claiming) the child tax credit and reconciling the advance payments.

NATP went live on Facebook to discuss these challenges and possible solutions to accurately completing the forms required for clients to claim the credits and report or reconcile the advance payments.

There is also detailed information and in-depth examples in March’s TAXPRO Monthly (available to Professional and Premium level members). If you’re not a member and want to become one, go to natptax.com/join. Use the code 22SOCIAL at checkout to take $25 off the new member fee. 

Listen to a replay of the live conversation with Sheri Fronsee, NATP tax research specialist, below!

NATP is hosting a webinar (live on Feb. 15 and Feb 16, or on demand) on reporting and reconciling the child tax credit. We’ll discuss how to determine credit eligibility, use Letter 6419 for reconciliation of advanced CTC payments, calculate the safe harbor repayment protection amount and provide examples explaining how to report it on the tax return, specifically Schedule 8812 (Form 1040).  

Questions include:

  1. Roughly 39 million households received monthly advanced child tax credit (CTC) payments. During the next few weeks, those advanced payments will need to be reported and reconciled on the 2021 individual tax returns using the Schedule 8812. Sheri – what’s the latest with Schedule 8812, why are we talking about it?
  2. Let’s talk about another 2021 change making this even more complicated – parents had the option to receive advance child tax credit payments or not. How does this impact the taxpayer AND tax professional?
  3. What about the case where the taxpayer receives more money in their advance payments than they were actually eligible for. What’s going to happen in these situations?
  4. We all know there’s been quite a bit of fallout from the effects of COVID-19, financially and personally. Not all parents have been able to fare well and some split. What happens for these payments in the case where parents aren’t living together?
  5. The latest news we have is that some taxpayers are receiving incorrect letters from the IRS about their advance payments if they moved. Can you go into a little more detail on that and what tax pros should do if their client is in this situation?
  6. If someone is listening to this and needs more education on how this topic, what can they do?
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More information on the incorrect IRS notices (CP-80)By: NATP Research
January 28, 2022

According to recent reports, the IRS has a backlog of more than 6 million unprocessed individual returns; however, it has opened the majority of its mail and processed the payments accompanying these returns. As a result, many taxpayers received a CP-80 notice, which states the IRS has a credit on the taxpayer’s account but has not yet received a 2020 tax return. In most cases, though, the IRS has received the tax return, but just haven’t processed it.

This erroneous notice contains more conflicting information, as the CP-80 notice states, “Please file today. Send your signed tax return to the address shown on the top of your notice.” However, the IRS has stated in many news releases NOT to resubmit a tax return. The notice also states “If you don’t file your return or contact us, you may lose this credit. The Internal Revenue Code sets strict time limits for refunding or transferring credits.”

Here’s an example of the CP-80 notice:
CP80

In addition, NATP has heard reports of taxpayers receiving their payments back in the mail from the IRS. Other taxpayers have received, in addition to the CP-80 notice, failure to file notices resulting in penalties, liens, etc.

NATP reached out to our IRS liaison to find out what taxpayers and tax professionals should do when these situations occur. We’ll be in communication with our members when we receive additional guidance.

NATP members will receive email updates as we continue to follow this topic. If you’re not an NATP member and want to receive news updates like this directly to your inbox, visit natptax.com/join. Otherwise you can join our 30-day trial to test us out if you’re not ready to commit.

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Top tax news of 2021By: National Association of Tax Professionals
January 4, 2022

2021 was quite the whirlwind year for those in the tax prep business, as well as taxpayers themselves. Between last-minute, retroactive tax law legislations and sometimes lackluster guidance on how to apply these new rules, tax professionals were busy, to say the least. Here’s a look back at the top tax news stories of 2021 from the NATP blog.

Here’s to hoping the 2022 tax season is a little less chaotic for you and your clients!

Top five tax news stories of 2021

1. Eligible PPP expenses now deductible

The guidance most practitioners were waiting on has been released. The Consolidated Appropriations Act, 2021 (CAA, 2021), passed by Congress on Dec. 27, 2020, states that otherwise deductible expenses paid for by a recipient of a Paycheck Protection Program (PPP) loan continue to be deductible even if the PPP loan is forgiven in accordance with the statute. (Read more)

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2. Key provisions of the Infrastructure Investment and Jobs Act

On Nov. 15, 2021, President Biden signed into law H.R. 3684, Infrastructure Investment and Jobs Act (IIJA). In general, this legislation authorizes funds for federal-aid highways, highway safety programs and transit programs, and for several other purposes, but it also contains key tax provisions. Here is a summary of what we know right now. (Read more)

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3. Employee retention tax credit (ERC) updates for 202 and 2021 tax returns

Many changes have occurred in the past year regarding the employee retention credit (ERC). The ERC was created by the Coronavirus Aid, Relief, and Economic Security Act (CARES) and stated eligible employers who paid qualified wages after March 12, 2020, and before Jan. 1, 2021, were eligible for a refundable credit equal to 50% of qualified wages paid (limited to $10,000 in wages per employee). (Read more)

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4. NATP 2021 Software Survey results

No one ever said choosing the perfect tax preparation software was easy. You may have tried one package; you may have tried several. Over the years, you’ve learned that the must-have features for one preparer may not matter much to another.

We can all agree, however, that what’s important is having a software that satisfies both your business needs and your budget. Finding the balance is key, but for many small practice owners, the increasing cost of tax software is a major concern. (Read more)

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5. Update on advance payment of child tax credit

The IRS is required by the American Rescue Plan Act to establish a program to help taxpayers with children by making periodic advance payments, July through December 2021, that equal, in total, 50% of the IRS’s estimate of the eligible taxpayer’s 2021 child tax credit (CTC).

The IRS announced it has started sending letters to the more than 36 million American families who may be eligible to receive these monthly payments starting July 15. (Read more)

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