California taxpayers told they owe the IRS money when they already paid. Here’s why

The Internal Revenue Service has sent letters to taxpayers throughout California telling them they owe money — and hefty penalties and interest — for their 2021 taxes even though they had already paid everything they were obligated to pay.

Tax preparers throughout the state have heard from anxious clients about the written notices, clients who generally have paid on time for years and view any such formal IRS correspondence with dread.

Jason Russell, a Sacramento certified public accountant, got one of the letters himself. So did many of his clients and others.

“We’ve heard from numerous tax professionals that their clients are receiving erroneous… notices for nonpayment of balance due for 2021 tax returns even though the payments were debited from their clients’ bank accounts,” said a note to tax preparers from Spidell, a California-based firm that follows tax issues.

It said it contacted the IRS and “confirmed that this appears to be a systemwide issue.”

IRS told The Bee in a statement that “At this point, the IRS does not believe this to be a widespread problem.”

The agency said that it is “aware that a small set of taxpayers may have received a Notice CP14 after paying their tax balance in full. Taxpayers who receive this notice and have paid their balance due can disregard this notice.” A CP14 notice informs people they owe money on their taxes and offers ways to pay.

IRS said that “transactions made to the IRS within the past 21 days of the notice may not be reflected in the notice received.”

Payments not received?

Taxpayers told they owe money generally receive the CP14, a four-page notice that tax preparers said can be intimidating to people not used to such correspondence.

“Those who called me were noticeably rattled by the letter,” said Claudia Stanley, a Fresno CPA.

The notice says at the top “Our records show you filed a 2021 Form 1040 with an amount owed.”

It then lists the amount owed “when you filed your return,” plus penalties and interest. It provides a date when payment is due, and warns if no payment is received, there could be additional penalties and interest.

“Penalties can be as high as 50% or more of the tax you owe. In addition, each day you wait to pay after this date, interest accumulates on your total balance,” the notice says.

It goes on to explain the policy, and offer help if needed. It also provides a website and phone number where people can seek help.

The IRS told The Bee: “For those who believe they have paid in full and believe their CP14 to be in error, don’t panic. If you disagree with the CP14” it advises calling the IRS using the toll-free number provided in the notice.

Getting through to the IRS

That could mean frustration. The IRS phone lines got 73 million calls during the 2022 tax season, which ended April 18, and according to the National Taxpayer Advocate answered about 10% of all calls.

Generally, if after you file your taxes and you owe money, but you haven’t paid, the IRS will send a notice within 60 days, detailing how much is owed plus penalties and interest.

Russell said several clients at his firm in Sacramento who’ve either paid their taxes by mail, on the IRS website or through a third party received notices of non-payment. He said the IRS letters were sent out to those clients on June 15.

His firm then sent response letters to the IRS weeks ago which included a confirmation of the payment.

Once the agency gets proof of the payment, he said he expects it to clear the account in 10 to 12 weeks.

The ordeal may not be over for those taxpayers, though.

Russell said he’s “never had an issue” with the IRS not following through with resolving these issues after getting proof. But, he said, it won’t be uncommon for taxpayers to get another notice letter because the IRS has auto-generated notices every 60 days.

Stanley said that her clients who got such notices in error sent her proof of payments either online or with canceled checks.

She and other CPAs are informing clients the IRS has a system issue “and will eventually get it rectified. In the meantime, I’ve asked them to send us any additional correspondence they may receive just to be sure the IRS doesn’t escalate collection activity against them.”

In the meantime, the worry is widespread. So many people, said Stanley, are asking “What do we do?”