Throughout 2020, the IRS has struggled to keep up with the manual process of opening US postal mail. As the pandemic took hold, the IRS sent workers home. The offices remained shutdown for most of the spring. With no one on site to perform administrative tasks, millions of pieces of unopened mail accumulated in trailers set up outside IRS facilities. As a result, more than one million 2019 tax returns remain unopened as of November 29, 2020.
Let’s take a look at what happened, how the IRS has attempted to fix the problem, and how it may have impacted small business owners’ tax payments and IRS notices. We’ll also derive business takeaways you can use for similar COVID-19-induced situations.
Mail piled up fast with no one in the office
The IRS has given Congress several updates about the status of unopened mail, including unprocessed tax returns and stimulus checks that were returned undelivered. Here’s how big the backlog got and some milestones of how quickly the IRS has worked it down:
- April: 23 million pieces of unopened mail
- June: 12.3 million pieces of unopened mail
- October: 5.3 million pieces of unopened mail with 2.5 million unopened tax returns
- November: 3 million pieces of unopened mail with 1 million unopened tax returns
New mail comes in to the IRS at a rate of 300,000 to 500,000 pieces each week, so employees have had to keep up with that workload as well.
IRS automated collection system compounded problems
Unfortunately, no one told the automated collection billing system at the IRS that the mail wasn’t being opened. Consequently, the system was happily spitting out collection notices while the payments in the mail sat unopened. Taxpayers would receive a first notice, then automatically get a second notice four weeks later when the system deemed it still had not received any money. And then another letter. Each successive letter sounded more threatening than the last. According to Forbes, “By the third letter, IRS is reminding taxpayers of their rights to lien, levy and seize in the event of non-payment.”
Do NOT cancel tax payment checks
It can be nerve wracking to file your tax forms and make tax payments, but fail to receive any receipt or acknowledgement from the IRS. This is especially true for business owners who are watching their bank statements to see tax payment checks clear. From a cash flow perspective, you need to know when that tax payment is going to clear. Beyond that, many businesses have internal processes to cancel checks if they remain uncashed for a long period of time in order to avoid fraud.
If you’re feeling nervous about an uncleared tax payment, don’t cancel your check! As long as the check is still good (doesn’t bounce) and has not been canceled, the IRS will process it when it is finally opened. More importantly, payments will be posted as the date the IRS received them, not the date the IRS opened and processed them. That means having that original check sitting in the unopened mail will prevent the IRS from charging you any interest or penalties.
Should you call to check on your return or payment? The IRS does not recommend it–at least not yet. There are currently about 6.8 million returns in process. Further, this backlog situation has caused high call volumes and long wait times. The IRS stated “Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending.”
5 pandemic catch-up rules to apply in your business
Looking at the IRS’ approach to the mail backlog problem yields five takeaways that can be applied in any sized organization:
- Assess the problem and update customers. The IRS measured a complete count of unopened mail as they began to work the problem. They have been able to keep IRS management informed and also to give Congress an updated accounting of their progress. Customers expect transparency and accountability. Communicate with them to outline the problem and explain your company’s approach to solving it. If it is going to take a while, be sure to send regular updates to keep them informed and engaged.
- Communicate with your team. Once you’ve measured the size of the problem and analyzed it for how to achieve the best solution, you should communicate about that internally. Give employees specific assignments, set goals for tackling the problem, and update the entire team frequently, so they know how much progress is being made.
- Ask for patience and forgiveness. The COVID-19 pandemic and resulting business impacts are neither your nor your employees’ fault. However, your customers didn’t cause the problem either. And they’re having a difficult year themselves. To strengthen your brand and customer relationships, apologize for the inconvenience and thank them for their patience. IRS Commissioner, Charles Rettig, did just that when he said, “On behalf of the Internal Revenue Service and every employee, for literally every American, we appreciate the patience and understanding. This is not an excuse, but I will say that our employees went through the same exact thing as every other American during COVID with respect to health and safety concerns.”
- Don’t make the problem worse. Above all, don’t cause customers additional anxiety. Remember the automated IRS collection system? Make sure none of your automated systems are communicating inappropriately for the situation. Things like overdue billing notices or automatic charges for undelivered or unavailable services will negatively impact customer satisfaction. This will also increase customer cancellations, disputed credit card charges and incoming complaint calls.
- Keep grinding. When you find yourself in a backlog such as the IRS is experiencing, there’s really no choice other than to keep plugging away. The IRS has been offering weekend and overtime shifts to catch up. If you are able to ask employees to help by working longer hours, you can get back on track faster.
If you’re one of millions waiting for the IRS to process your tax return and payment, take a deep breath and exercise patience. Watch the news for updates. Once the remaining backlog gets cleared, if you receive notices or have questions about your payment, contact the IRS.