Admitting that they count on one other chaos-filled submitting season, Treasury and the IRS have been vehement (virtually rabid) about encouraging taxpayers to file their 2021 tax returns electronically. They’ve additionally been encouraging taxpayers who acquired advance funds of the Baby Tax Credit score (CTC) to observe for Letter 6419, which reviews the quantity of the credit score that was paid upfront and which is important to reconcile the total CTC on Kind 1040. They’ve been telling taxpayers to attend for this letter and to make use of it when getting ready Kind 1040 to make sure that advance funds of the CTC are reconciled and the total CTC is calculated precisely on the return. They’ve been warning that failure to make use of the letter may lead to inaccurate calculations, incorrect returns, and refund delays. However what occurs when Letter 6419 is inaccurate?
The IRS has not too long ago acknowledged that some Letters 6419 that have been printed and mailed to taxpayers in December have been incorrect. The reason for the error was that the letters have been printed and mailed in December however the December advance fee was returned by the financial institution (if deposited electronically to an account that had been closed) or by the postal service (if the taxpayer acquired a paper test). The IRS has said that they count on this can solely have an effect on a small proportion of taxpayers who acquired advance funds of the CTC, however even a small proportion can imply a number of million incorrect letters.
The IRS can be conscious that the letters could also be inaccurate for taxpayers who alternate custody of their kids (and the related tax advantages) each different yr. Sadly the issue might not finish with the recognized errors. Tax professionals on social media are more and more reporting errors on Letter 6419 that can not be attributed to returned funds or custody preparations. Certainly, among the incorrect letters are being acquired by tax professionals themselves.
As of this writing the IRS has solely acknowledged two of the three issues: points arising from December funds that have been returned and points arising from alternating custody years. The IRS is recommending that taxpayers who acquired a Letter 6419 however who didn’t obtain a December fee confirm the quantity utilizing an account transcript. Account transcripts could be mailed to the taxpayer or could be accessed if the taxpayer has an IRS on-line account. If the quantity on the letter is completely different from the whole of the quantity of the funds listed on the transcript, the quantity on the transcript needs to be used to reconcile the credit score on the taxpayer’s tax return.
Sadly the IRS has not supplied any clear steering for reconciling the credit score in conditions the place dad and mom alternate custody each different yr. Nor have they got any suggestions as to what to do when the knowledge on the letter doesn’t match what’s on the account transcript and the knowledge on the account transcript is completely different than the funds the taxpayer truly acquired. That sounds loopy on condition that computer systems are often fairly good at doing arithmetic and printing reviews, however taxpayers are discovering that quantities deposited to their financial institution accounts don’t match the whole quantity reported on the letter nor do they match the reported transcript funds. Once more, the IRS has not formally acknowledged the issue and, consequently has not supplied any info as to why the maths and reporting errors are occurring or what taxpayers ought to do with respect to reconciling the advance funds on their tax return. There’s no official steering as to which quantity to make use of when all three numbers are completely different.
So what must you do? Nicely, for those who suppose the quantity in your Letter 6419 is incorrect, it is best to positively test the quantity in opposition to each your financial institution deposits and your IRS account transcript. And even for those who suppose the letter is appropriate it may possibly’t damage to double test. Nonetheless verifying deposited quantities in opposition to a transcript reported quantity just isn’t a workable choice for taxpayers who acquired paper checks and cashed them. These taxpayers can nonetheless evaluate their account transcripts to their Letter 6419 however proving what they did or didn’t obtain by paper test (if the test was cashed somewhat than deposited) might be tough (if not unimaginable).
Anecdotal reviews of comparable errors in Letter 6475, which report the quantities of the third Financial Affect Cost, are additionally being discovered by taxpayers and tax practitioners. Once more, the letter quantities can (and needs to be) in contrast in opposition to quantities deposited when doable and in comparison with the quantities reported on the taxpayer’s IRS transcript. It’s clear that for both letter the IRS might be utilizing the quantity on the transcript as the premise for comparability to find out if the taxpayers Kind 1040 is correct with respect to credit score reconciliation (CTC for Letter 6419 and the Restoration Rebate Credit score for Letter 6475). What’s much less clear is the trail to decision (and an correct tax return) when the consumer can show that the quantity of their direct deposits was completely different than the quantity reported on the transcript whether or not the discrepancy arises from a custody association or a doable calculation error. All of the Service is saying about these forms of conditions is count on delays in each return processing and the issuing of refunds. And all I can add to that’s for those who use a paid preparer, please be affected person as a lot of this case is totally past their management.