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IRS starts challenging year with new round of stimulus payments

The IRS is kicking off a busy and challenging year by sending out the second round of stimulus payments to tens of millions of Americans.

The agency has already distributed many of the $600 payments just a week after President TrumpDonald TrumpTrump State Department appointee arrested in connection with Capitol riot Intelligence community investigating links between lawmakers, Capitol rioters Michelle Obama slams 'partisan actions' to 'curtail access to ballot box' MORE signed the coronavirus relief bill into law. The Treasury Department on Tuesday released data showing that $112 billion in direct payments, of an estimated $164 billion in total, have been issued electronically.

Still, the IRS will face challenges in ensuring every eligible American receives their payment. That task comes alongside implementing other tax-related provisions from the $900 billion relief package.

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The new responsibilities come just weeks before the start of what’s expected to be a chaotic tax-filing season due to all the abnormalities in 2020 stemming from the pandemic.

“Necessary as it is to enact this kind of relief, it does add to the burdens of the Service,” said Mark Everson, who served as IRS commissioner from 2003 to 2007 and now is vice chairman of Alliantgroup, a tax consulting firm.

The IRS and Treasury Department have been endeavoring to move quickly to get out the $600 payments to U.S. households.

On the evening of Dec. 29 — two days after Trump signed the relief package — Treasury Secretary Steven MnuchinSteven MnuchinBiden cautious in making Trump tax returns decision Biden brings back bipartisan meetings at the White House On The Money: Schumer urges Democrats to stick together on .9T bill | Collins rules out GOP support for Biden relief plan | Powell fights inflation fears MORE said payments could start arriving in people’s bank accounts as early as that night, and that the department would start mailing paper checks the following day. The scheduled payment date for many of the payments sent by direct deposit was Monday, according to the IRS.

The agency started sending out the second round of payments more quickly than it did the first round last spring, when it took a couple of weeks for the first batch to get out the door.

The faster turnaround is due in large part to the IRS now having more contact and banking information about eligible recipients than it did earlier. The agency created web tools last year allowing people to provide their bank account information and letting non-filers submit relevant information about themselves and their dependents.

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“The programming this time was not nearly as much of a lift,” Everson said.

But there are hurdles to distributing all the payments.

Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, said that while she’s glad the IRS was able to rapidly distribute many payments during the holiday season, issues are likely to arise.

“We had snafus in the spring and I would anticipate snafus occurring now, but not necessarily the same ones,” she said.

Some people who have not received their payments have been outspoken on Twitter, directing their criticisms at the IRS and tax prep companies such as H&R Block and TurboTax.

H&R Block said on Twitter that it processed millions of stimulus payments on Monday to customers’ bank accounts and prepaid cards. They provided telephone numbers for customers who saw on the IRS’s “Get My Payment” web tool that their payment was sent to an account they didn’t recognize.

A spokesperson for Intuit, which owns TurboTax, said the company is partnering with the IRS to help taxpayers get their payments as soon as possible. The spokesperson pointed to an IRS news release in which the agency said some payments may have been sent to inactive bank accounts because of the speed at which the payments were distributed and that in those cases the banks return the funds to the IRS.

The IRS said in a Q&A document Tuesday that because it has a short timeline to distribute the payments, it won't be able to reissue payments and instead is encouraging people who didn't receive their money to get their rebates in a prompt fashion by filing their 2020 tax returns electronically.

Tax professionals also have expressed concerns that people who closed their bank accounts since receiving their first payment in 2020 or people who received their first payment by paper check and have since moved will face challenges getting their money.

Additionally, experts expressed concerns that several million people who are newly eligible for payments might not get them quickly. The new relief package makes U.S. citizens who file joint tax returns with spouses who lack Social Security numbers eligible for the $600 payments, as well as for the first round of payments authorized by legislation enacted in March. Children with Social Security numbers were made eligible for payments this time around if at least one of their parents also has a Social Security number.

Rebecca Shi, executive director of the American Business Immigration Coalition, said her group has heard from several mixed-status families who have received their second-round payments, as well as several who haven’t. Mixed-status families will receive their first-round payments when they file their 2020 tax returns.

Under the latest coronavirus relief law, the IRS has until Jan. 15 to issue advance payments of the $600 payments. Eligible Americans who did not receive their second-round payments, as well as those who did not receive theirs from last year, can claim a credit when they file their 2020 tax return this year. Additionally, people who received smaller payments than they are entitled to can claim the difference as a credit on their 2020 returns.

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The tax-filing season is expected to begin toward the end of January; the IRS has yet to announce the start date.

Tax professionals expect there will be some confusion and frustration as taxpayers try to reconcile their stimulus payments on their tax returns.

Nina Olson, executive director at the Center for Taxpayer Rights, predicted that there could be “real problems” when people claim credits for different amounts than the IRS thinks they’re entitled to.

Taxpayers claiming outstanding rebates on their 2020 returns is just one of a number of reasons why experts think the filing season could be a heavy lift.

There are concerns that many recipients of unemployment benefits will be surprised that they owe money to the IRS if they did not realize that the benefits are taxable income or did not have taxes withheld from their benefit payments.

Additionally, some taxpayers have yet to receive their 2019 refunds because the IRS has a mail backlog. Others have been hit by processing delays triggered by the agency’s fraud filters, which have high false-positive rates. There are concerns that those taxpayers could see delays in getting their 2020 refunds as well.

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“It’s going to be awful,” Olson said of the filing season. She recommended that IRS employees who are responsible for processing mail be placed at the same priority level for the COVID-19 vaccines as other front-line workers who are not involved with health care.

The IRS starts preparing for filing seasons well in advance but now has to make some last-minute adjustments due to the enactment of the latest relief package.

Ahead of the start of the filing season, the agency will have to adjust its systems to account for provisions in the new relief package and work with tax prep software companies to ensure they are ready to deal with the changes.

Adam Markowitz, an enrolled agent in Florida who prepares individual and business tax returns, said both the IRS and tax software companies will have to scramble to get ready for a likely late January start.

“It’s going to be a push to make sure that not just the IRS is ready for it but that any and all of the major softwares are ready for it,” he said.