The IRS' alarming note, coded "CP21C," told beneficiaries that the government was offsetting their stimulus payment from 14 years ago because of a potential federal debt they owed.
The letters were sent to more than 109,000 individuals in January, according to the Taxpayer Advocate Program. It was a mistake in the stimulus-relief delivery efforts, just another glitch.
The IRS rushes to repair a mistake that sent millions of stimulus payments to incorrect bank accounts
In an interview, National Taxpayer Advocate Erin M. Collins said, "It's really disheartening. I know the IRS has its challenges, and because of the pandemic, we are all trying to be careful. Yet there are things at the same time that really shouldn't be happening."
This mistake results from the adoption of two sets of stimulus payments by the IRS. Based on 2018 or 2019 federal returns, the Coronavirus Aid, Relief and Economic Protection Act, or Cares Act, which passed in the spring, approved payments of up to $1,200 for individuals and $2,400 for couples filing jointly. The Cares Act mandated the first round of stimulus payments by Dec. 31 to be distributed by the IRS.
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The payments were an advance against a tax credit referred to as a 'Recovery Refund Credit' on the 2020 1040 Form. During 2020 and early 2021, the advanced payments were eligible to be made in two rounds. Congress set deadlines for getting the payments out to the IRS.
Faced with a backlog of returns from 2019, the IRS sent the CP21C notice to notify individuals that they would have to wait until their 2020 return was filed to obtain the relief, since the department failed to meet the deadline of Dec. 31. Another indication of the repercussions of the antiquated technology of the department, Collins said in a blog post, is the erroneous notices. "If you don't have to file a paper 2020 federal tax return, the IRS watchdog warns.
In some instances, the IRS notice stated, "Owing to new laws, we applied a credit to your 2007 tax account. If the law permits, we have used (offset) all or part of your economic stimulus payment to pay your federal tax."
During the Great Recession, IRS computer systems may have mistakenly reissued letters from the last time Congress approved stimulus-payment offsets, Collins said.
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What may be even more confounding is that, unlike those taxpayers whose payments have already been processed, some taxpayers will potentially have all or part of their stimulus payments taken. To meet past-due federal tax liabilities, the IRS may reduce refunds, including the portion attributable to refundable credits.
When they owe back taxes, several individuals will not receive promised stimulus payments in hand.
In an American Bar Association email group for tax clinics, there were some posts about clients receiving notifications that their stimulus payments were being offset, said former taxpayer advocate Nina Olson, who is now the Center for Taxpayer Rights' executive director.
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This latest glitch comes just as, as part of the introduction of the 2019 Taxpayer First Act, the IRS announced the creation of a new role, the chief taxpayer experience officer.
