Tax Filers Are Getting This Alarming Notice in the Mail. Don't Panic if It Happens to You

IRS letters can be scary -- especially this one.

The IRS, like many other government agencies, has a lot on its plate. And like many businesses, it's faced its share of challenges during the pandemic. But recently, the agency has employed a practice that may be needlessly scaring taxpayers.

Calling out taxpayers erroneously

The IRS had been sorely understaffed since before the pandemic, but the events of 2020 set the agency back big time. That year, the IRS had to close many of its field offices for months to keep workers safe in the wake of the outbreak. That, in turn, has caused a huge backlog the agency is still working to address.

In fact, many of the tax returns submitted in 2020 have yet to be looked at, which is why tax filers are often advised to submit their taxes electronically.

Paper returns -- those that are mailed in -- require the work of an actual person, so they take longer to process. Those who are owed money in the form of a tax refund and file electronically, for example, will commonly see that money hit their bank account in half the time it takes to process a refund for a paper return.

But still, some people are used to filing on paper and don't want to go through the process of dabbling with tax software. In recent weeks, the IRS sent erroneous letters to taxpayers saying the agency has yet to receive their 2020 taxes when, in reality, those returns are sitting in a pile somewhere just waiting to be looked at.

A big blunder

If you don't owe the IRS any money, then there's no penalty for being late with a tax return. But if you do owe the IRS money and your return is late, you'll risk being assessed a failure-to-file penalty. That penalty can be worth 5% of your tax bill for each month or partial month your tax return is late, up to 25%.

It's for this reason that some tax filers may be experiencing needless stress right now. The IRS has been sending CP80 notices stating they're missing tax returns for the 2020 tax year to go along with the payments that correspond to them. Those notices have also threatened filers that they'll lose credit for the payments they made in conjunction with those returns if they don't file them promptly.

But again, in many cases, it's not that those returns were never filed -- it's that the IRS hasn't gotten around to processing them. Poor communication may be causing a lot of people undue panic.

The silver lining

The good news here is that the IRS is now aware of the issue, and it says it will suspend those notices in situations where it has a payment on file for the 2020 tax year. In fact, if you get a letter stating your 2020 tax return is missing but you know you filed it, you should not submit a second return, even if your original letter instructs you to do so. You definitely should not make a second tax payment for 2020 if you sent one already.

While you can follow up with an IRS agent by phone at 800-829-1040 if you end up receiving a CP80 notice, you may also just want to sit tight and wait things out. Calling the IRS could mean waiting hours to speak to a live person, and you probably don't have time for that.