IRS Tells Millions of Taxpayers to Delay Filing

Feb 15, 2023 | Blog, Uncategorized

Tax attorneys in San Jose have learned that the Internal Revenue Service has directed millions of taxpayers in California, and 19 other states, who got tax rebates last year to delay their tax filings.

The reason given by the IRS was that it needed extra time to clarify what is and isn’t taxable regarding those special refunds and tax rebates. It’s unknown why this was not decided in a timely manner. In a statement made on Feb. 3, the IRS claimed that additional clarity was coming but did not name a specific date when it would be resolved. As a result, numerous California taxpayers are essentially in limbo, although the IRS did state that most rebates will generally not be taxable.

Disaster Relief and General Welfare Payments

In a Feb.10 statement, the IRS said that the taxability of payments related to disaster relief and general welfare will not be challenged. Additionally, approximately 16 million Californians received “middle-class tax refund” rebates of $350 per person in 2022. These payments were a component of a state relief package created to help residents combat skyrocketing inflation. In 20 states, including California, these rebates will not have to be reported as income.

Filing Delays Have a Negative Impact on Those Counting on Refunds

According to San Jose tax lawyers, many of those impacted the most by these last- minute instructions from the IRS are the very people who depend on receiving tax refunds in a timely manner to get ahead of bills, make a specific purchase, or pay down debt. According to IRS data, in 2022, the average tax refund for the tax year 2021 was over $3,000, which is a jump of approximately 14 percent from the previous year.

A Tax Foundation Vice President Calls the Uncertainty Unfair to Taxpayers

Jared Walczak, Vice President of State Projects at the Tax Foundation, stated that the uncertainty created by this last-minute advice to delay filing is unfair to taxpayers. In a blog post, he indicated that the IRS should not have remained silent until Feb. 3, since tax experts knew all along that state rebate payments and their taxability status would be an issue. He claimed that all the IRS technically said on that date was, “[W]e’ll get back to you,” and that this was not a fair approach to filers.

Tax Penalties on the Horizon?

Unfortunately, filers who already submitted their returns and did not include certain payments that may be taxable could end up being subjected to future penalties, interest, and additional taxes if the IRS decides such rebates were indeed taxable. Filers may also discover they must submit an amended return, which could further affect or tie up refunds. Ultimately, they may end up needing the advice of a back-tax attorney merely because they were not given this new information in a timely manner.

Erin Collins, National Taxpayer Advocate, stated in a blog post last Thursday that the IRS “missed the boat” when they did not offer timely guidance concerning this issue. She stated that it is not acceptable for the IRS to give filers a choice between having to wait much longer for their refunds or file a return right now that at a later date the agency may determine is unacceptable.

According to an IRS tax attorney, the extent of the confusion regarding these last-minute instructions is not yet known, but filers deserve additional clarification.

Those who find themselves bewildered by the recent statements made by the IRS should contact tax attorneys in San Jose for further guidance.