Nationwide Tax Forum FAQs – Part Two

Tax professionals and our tax industry partners are the backbone of tax administration. That is why I hosted Town Hall listening sessions at the IRS’s Nationwide Tax Forum this summer. Hearing the questions, issues and concerns of the tax professionals who attended is an important tool that my team and I at the Taxpayer Advocate Service (TAS) are using to advocate for taxpayers more effectively.

We heard a lot of common questions that popped up in each of the five tax forums. In Part One of this blog, we explored some of the top pandemic-related questions and provided resources to help taxpayers and tax professionals navigate their ongoing problems. Here, in Part Two, we will focus on questions that involve general tax return preparation and processing, concerns about some IRS forms, notices, and letters, and provide more helpful resources.

Tax Return Preparation and Processing, and Notices/Letters Questions

UPDATE 11/21/2023: IRS issues revised Form 1099-K reporting guidance and tax Fact Sheet.

On November 21, 2023, the IRS issued Notice 2023-74 delaying the requirement for third-party electronic payment networks to report transactions over $600 to the IRS on a Form 1099-K, Payment Card and Third Party Network Transactions, until 2025. The $20,000 and 200 transactions thresholds remain in place until December 31, 2023, and will then decrease to $5,000 for the 2024 tax year. Note: The rules for reporting income are not changing. Anybody receiving taxable income through third-party networks must still track and report their taxable income. Read the IRS’s news release for more details.

Incorrect Form 1099-K

There are a lot of concerns and confusion throughout the tax world and at the tax forums about the new reporting requirements of Form 1099-K, Payment Card and Third Party Network Transactions, which is required to report certain payments for goods and services. As a part of the American Rescue Plan Act of 2021, the Form 1099-K minimum threshold for reporting payments made by third party settlement organizations like Venmo, PayPal, or Cash App was reduced from $20,000 to $600 for calendar years beginning after December 31, 2021.

Because these payment apps are used by many individuals to send and receive money among friends and family, the changes in the minimum reporting thresholds raised questions and serious concerns by the public regarding the applicability to taxpayers using the apps for personal use and preventing incorrect Forms 1099-K from being issued. In response, the IRS issued Notice 2023-10 to postpone the $600 Form 1099-K minimum reporting threshold for transactions in the 2022 calendar year. Despite this transition period and the resources since added to IRS.gov, many taxpayers still have questions, including what to do if they receive a Form 1099-K in error.

If you receive a Form 1099-K with incorrect information, you can try to resolve the issue by contacting the filer, whose name and contact information appear on the front of the form. If you can’t get the form corrected, don’t worry – you can offset incorrectly reported amounts on your tax return.

When using electronic payment systems such as Venmo, PayPal, and Cash App, taxpayers should label personal payments like gifts or reimbursements to friends or family as an amount paid for something other than goods or services. Another tip is to create personal and business profiles to keep business transactions separate from nontaxable personal transactions.

However, keep in mind, the rules for reporting income did not change. Anybody receiving taxable income paid through third-party networks must still track and report their taxable income regardless of whether or not they receive a Form 1099-K or other information return.

Identity Theft

Identity theft (IDT) is a persistent challenge for the IRS, and taxpayers victimized by tax-related IDT are facing a lengthy wait to get IDT issues resolved. Many of these taxpayers have to deal with a host of potential issues outside of the IRS such as impact to their credit, possible change of address on their financial institutions or credit cards, and potential erroneous Forms 1099 or W-2 in subsequent years for income they did not earn. It is heartbreaking to hear of the many experiences that these taxpayers are enduring.

We heard from a lot of tax professionals at the five tax forums who are also experiencing a host of IDT issues, including problems with authenticating their clients’ identities when flagged for potential IDT. IDT is such a big problem that it will be one of the ten most serious problems encountered by taxpayers in our 2023 Annual Report to Congress. In our Fiscal Year 2024 Objectives Report to Congress we provided an update on the lengthy time it takes to resolve IDT victim assistance cases, and called on the IRS to provide faster relief for IDT victims.

For taxpayers who were victimized by tax-related IDT it is important to understand that it is generally taking the IRS more than a year to resolve these cases. TAS will continue to advocate that this process be expedited to assist these victims, and I believe the IRS should do more to help these individuals with non-tax related impacts.

The IRS also periodically updates the IRS Operations: Status of Mission-Critical Functions page with information regarding how long it is taking to resolve IDT victim assistance cases. This can also be a helpful tool for tax professionals to share with their clients, so they understand the bigger picture about potential IRS wait times and delays.

For taxpayers where the IRS flagged their return for potential IDT, I also recently addressed these challenges on my NTA Blog, writing:

“On one hand, having the IRS protect against IDT is good for all, but for those taxpayers dealing with IDT victim assistance or needing the IRS to release their refunds when flagged as potential identity theft, the delay causes issues, and the process is confusing and time consuming. The IRS should assist taxpayers throughout the process to reduce the burden for those properly filed tax returns.”

To resolve cases identified as potential IDT, impacted taxpayers will need to verify their identity at some point in the process. If a taxpayer is unable to verify their identity with an IRS customer service representative, they may have to do it in person at a Taxpayer Assistance Center (TAC) by providing a picture ID, the Letter 4883C they received from the IRS asking to prove their identity, and a copy of the affected tax return if they filed one.

For more information, visit the Identity and Tax Return Verification Service page on IRS.gov.

Get an Identity Protection PIN to Protect Against Identity Theft

To prevent bad actors from filing fraudulent tax returns the best thing tax professionals can do for their clients, and the best thing taxpayers can do to protect themselves, is to get an Identity Protection Pin (IP PIN) – and don’t lose it. An IP PIN is a six-digit number that prevents someone else from filing a federal tax return using a taxpayer’s Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) and is only valid for one calendar year. Each year the taxpayer will need to retrieve their new IP PIN and the fastest way to receive an IP PIN is by using the online Get an IP PIN tool. If you wish to get an IP PIN and you don’t already have an account on IRS.gov, you must register to validate your identity. The IP PIN tool is generally available starting in mid-January through mid-November.

The IP PIN program is available to anyone who has an SSN or ITIN. Children can also get an IP PIN if they can pass the identity verification process. We are starting to see IDT involving children, so getting them protected is a good proactive step. Even someone who doesn’t have a filing requirement may want to get an IP PIN to protect their account.

For more information about IP PINs, read our TAS Tax Tip or visit the IRS’s Get An Identity Protection PIN page.

Note: It can be complicated to get a replacement IP PIN for taxpayers who lost their number or can’t remember it, but there are procedures to follow. See IRS’s Retrieve Your Identity Protection PIN page for the steps to retrieve or reissue an IP PIN.

Deceased Taxpayers and Taxpayers Improperly Identified as Deceased

At TAS we see two issues regarding the deceased. One is what I call, “I am not dead yet” where there is a programming problem that incorrectly reflects the taxpayer is no longer living. The other concerns filing delays for tax returns for taxpayers who have passed away.

What to Do If the IRS Incorrectly Recorded a Taxpayer as Deceased

There are a few circumstances where an account may mistakenly show a living person as deceased.

• Inaccurate information from the Social Security Administration (SSA);
• IRS processing errors; and
• Taxpayer tax return entry errors.

When the IRS gets a tax return with an SSN that their records show belongs to someone who died, that taxpayer’s IRS account gets locked, preventing the processing of any tax returns. The IRS issues notice CP01H, Tax Return submitted with Locked Social Security Number (SSN), when an account gets locked.

If a taxpayer receives this notice in error, there are a series of things that can be done to fix the issue, such as verifying that the correct SSN was used. Read our TAS Tax Tip: The IRS incorrectly recorded me as deceased – what should I do? for a complete list of steps to take. If you have already gone through the process and are still having trouble, go to the Can TAS help me with my tax issue? tool to see if TAS can assist you.

Needless to say, if the taxpayer is not deceased they should check with SSA to make sure that everything on their account is accurate and if SSA erroneously identified the taxpayer as deceased, the taxpayer needs to have SSA correct their records.

Processing Problems with Deceased Taxpayers

The issues tax professionals are seeing with deceased taxpayers vary, but one common theme is problems getting refunds for taxpayers who have passed away.

The first step is to fill out Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. You can see the Death of a Taxpayer instructions on Form 1040, U.S. Individual Income Tax Return, which explains how to prepare a return for someone who died and information for survivors, executors, and administrators of the estate of someone who has died, and review Publication 559, Survivors, Executors and Adminstrators.

Issues with Online Services

Since I first became the National Taxpayer Advocate, I have called for robust online accounts for taxpayers and tax professionals. Not surprisingly, we heard from tax professionals during my Town Halls, at the Case Resolution Room, and in our focus groups about lots of issues that could easily be solved online with the right resources and functionality, and without the necessity to pick up the phone.

For example, we worked with a tax professional who has a client, a business owner, who was having problems authenticating their ten-digit Online Signature PIN to e-File Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The IRS process for authenticating the PIN was very cumbersome, for both the tax professional (who was trying to provide support for their client) and the business owner, who had to spend hours on the phone with IRS’s e-help Desk to get a replacement PIN.

Note: If the authorized third party is a reporting agent, who is authorized to prepare and sign employment tax returns, they are assigned a five-digit electronic filer identification number (EFIN). If the reporting agent needs a replacement EFIN, they should call the e-help Desk at 866-255-0654. We also suggest planning ahead if reporting agents need a replacement EFIN instead of waiting during the heat of the filing period when phone lines are busiest.

The IRS has plans to continue improving digital access and services to business taxpayers, made possible through Inflation Reduction Act funding. Recently, the Business Tax Account (BTA) went live for sole proprietors and provides some basic features to allow a business to perform functions online. I look forward to the additional BTA functionality to help businesses with their tax matters. One of the requirements my office is requesting is the ability for an online PIN reset. So, keep an eye out for additional functionality coming in the future.

How to Submit a Power of Attorney (POA)

Staying with the theme of improved online services, this next section involves resources to help tax professionals file third-party authorizations.

During the pandemic, one of the areas impacted by the IRS backlog included the processing of Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization. In an effort to get out of the paper processing hole, the IRS introduced two tools to submit Forms 2848 and 8821: 1) an online portal for submitting authorizations; and 2) the Tax Pro Account that allows tax professionals to submit an authorization request to an individual taxpayer’s IRS online account for the taxpayer to sign electronically.

As I wrote in my NTA Blog from January 19, 2022, the new tools were a welcome addition but came with challenges and were initially largely underutilized and clunky. For a quick reminder, each of those “new” tools has a submission method with a unique set of signature rules such as:

• Forms submitted by fax or mail must have ink signatures;
• Forms submitted through the online portal must be signed by all parties electronically or with an ink signature; and
• Authorization requests submitted through the Tax Pro Account are paperless; representatives authenticate their identity and initiate an authorization request through their Tax Pro Account to the client and receive confirmation of successful submission. The client must then approve or reject the request through their personal online account.

However, many tax professionals do not have or are not fully using their Tax Pro Accounts. The good news here, the IRS recently added new features to the Tax Pro Account, with more functionality coming in the next year that should provide tax professionals with more useful online tools to assist their clients more efficiently.

For more details of the new features on the Tax Pro Account, how to open an account, and a sneak peek at the IRS’s future plans to continue improving the Tax Pro Account, give my blog, Attention Tax Professionals; Check Your Tax Pro Account, a read.

These improvements are a step in the right direction, but the work is not done and I am anxious for tax professionals to have a comprehensive, robust Tax Pro Account.

For more information about submitting third-party authorization forms, visit the Submit Forms 2848 and 8821 Online page and Power of Attorney and Other Authorizations page at IRS.gov.

Conclusion

It takes all of us to identify issues and opportunities for improvement. I believe by working together we can fix the challenges that exist in our tax system. That’s why we need your feedback, like we got during the tax forums, from the tax professionals who work, day in, day out, with taxpayers who are experiencing the repercussions of various problems.

I want to encourage our partners across the tax industry to let us know about what’s going on out there and not only tell us the problem but your solution as well. The bottom line – if you don’t tell us about these problems, we can’t help fix them. Sort of like the Transportation Security Administration’s motto, “if you see something, say something.”

Submit Your Issues to the Systemic Advocacy Management System

When you experience an issue that impacts the tax administration system as a whole or affects multiple taxpayers, you can report the issue using our Systemic Advocacy Management System (SAMS). This is how you can help TAS tackle the “big picture” problems in the IRS or the tax law.

A systemic issue may involve an IRS system, policy or procedure, or may involve protecting taxpayer rights, reducing burden, ensuring fair treatment, or providing essential taxpayer services. We want to hear from you, so visit our website to submit a systemic issue into SAMS and read our FAQs for more information about SAMS.

Submit Your Suggestions to Improve the IRS to the Taxpayer Advocacy Panel

You can also share your experiences with the Taxpayer Advocacy Panel (TAP). TAP is made up of volunteers from across the country with the mission of improving tax administration and IRS customer service. They have made more than 2,000 recommendations to the IRS to improve taxpayer notices and correspondence, IRS forms and publications, Taxpayer Assistance Centers, toll-free phone lines, and other taxpayer communications. To submit a suggestion to TAP, visit ImproveIRS.org/submit-a-suggestion.