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.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.