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IRS issues confusing advice on reconciling child tax credit

Yesterday, the IRS updated its Child Tax Credit (CTC) and Advance Child Tax Credit (ACTC) fact sheet (FAQ) with additional information on how to reconcile the credit on 2021 tax returns. The IRS took this This happened after acknowledging that the letter (Letter 6419) that he had been encouraging taxpayers to rely on to accurately reconcile the amount of CTC on their tax returns might be wrong.

Letter 6419 Inaccuracies

The 6419 letter could be incorrect if it was printed and/or mailed in December and the bank or postal service returned the payment. It could be wrong if the taxpayer alternates custody of one or more qualifying children every two years. And, it could be wrong. As of this writing, the IRS continues to assert that the problems are only expected to affect a small number of taxpayers, but that's less than reassuring when you're one of the taxpayers in question (or when you're the tax professional in that taxpayer).

To do?

According to IRS Fact Sheet 2022-5, “For most taxpayers, the total of the advance payments on Letter 6419 will match the total in the IRS online account.

If the total of your advance payments differs between your Letter 6419 and your IRS Online Account, you must rely on your Online Account total. If the person believes they received a different amount than the letter indicates, they should check the IRS Online Account; this is the information the IRS has on file. Submitting a different amount on the tax return could mean additional IRS review is needed and could mean a refund delay.”

The fact sheet warns: “Do not rely on the Child Tax Credit Update Portal or Tax Transcripts for total prepayments; This information may not be up to date."

However, IRS Fact Sheet 2022-7 updated Question H10 (which tells taxpayers what to do if the Child Tax Credit Update Portal shows a payment was issued but the taxpayer did not receive it) to report the following:

“Review your payments on the Child Tax Credit Update Portal to make sure the payment has not been returned. If you did not receive the payment and it was not returned, you can ask the IRS to trace the payment. If it is determined that the payment was not received or was returned to the IRS, IRS records will be updated and you may exclude the payment from the full amount of advance payments of the Child Tax Credit that you report on your tax return. This will allow you to claim the missing payment with your Child Tax Credit on your 2021 return, if eligible. Contact the IRS as soon as possible between 7 am and 7 pm local time at 800-908-4184. When you call the IRS, you must provide the following information about the missing payment: the payment date, method, status, and the amount shown on your Child Tax Credit Update Portal.”

The H10 answer does not take into account that tracking a payment, even under the best of circumstances, can take 4-6 weeks. It also fails to acknowledge that according to the most recent report from the National Taxpayer Advocate, the IRS only answered 11% of calls from taxpayers in tax year 2021. What the IRS has made painfully clear, however, is that filing an inaccurate return will cause the return to be placed in a queue for manual review and manual processing will cause processing and refund delays. In fact it will. The IRS still has a backlog of 6 million unprocessed 2020 1040s as of January 28, 2022. According to the IRS, processing these returns “does not require us to contact taxpayers, but does require special handling by a taxpayer.” IRS employee, so in these cases it takes longer than 21 days for the IRS to issue any related refund, and in some cases this work could take 90-120 days.” In other words, the IRS takes 3-4 months from the time the return is ready for manual review to do the manual review and then another 3 weeks to issue the refund.

Confusing and contradictory information

Readers should note that the advice in Fact Sheet 2022-5 directly conflicts with answer H10 in Fact Sheet 2022-7. The earlier fact sheet tells taxpayers that the information in their IRS online account is the most reliable information, while the newer fact sheet tells taxpayers to use the Child Tax Credit Update Portal (the portal) to ensure that the payment is not returned. So exactly what information from the IRS is the taxpayer supposed to trust? And under what circumstances? It seems that a taxpayer's best bet for finding accurate information is to use their IRS online account. For taxpayers who do not yet have an IRS online account and/or IRS identity validation, obtaining an account requires Internet access and identity validation that can be almost as difficult to obtain as contacting the IRS by phone.

Adding to the confusion is the fact that many taxpayers don't fully understand the distinction between "the portal" and "IRS Online Account." That's not surprising given that they use the same login credentials. Adding to the confusion is that the "Online Account Transcript" is clearly different (and more up-to-date) than the "Tax Transcript." The distinction between those two transcripts will even be lost among tax professionals given the vast amount of credit reconciliation information being released today.

  • The 6419 letter is probably correct, but should be checked if the taxpayer believes they are in error, or quite possibly just on principle.

  • The portal can be used to determine if a payment that was not received was returned to the IRS and could possibly be used to determine if the information on Letter 6419 is correct.

  • The taxpayer's IRS online account is, according to the latest IRS information, the most accurate source of information about CTC advance payments.

  • Taxpayer tax transcripts are different from the transcripts provided in the taxpayer's IRS online account and may be less accurate and therefore should not be relied upon by taxpayers or tax professionals when reconciling tax advance payments. the CTC on Form 1040.

Taxpayers should definitely try to cross-check anticipated CTC amounts received with what the IRS reported in letter 6419. Taxpayers who have IRS online accounts have the best chance of getting the most up-to-date and accurate information. Taxpayers using a tax professional should also be aware that this may result in delays in tax return preparation and may be charged for additional work required to reconcile the credit if Letter 6419 is not in accordance with the advances received.

Taxpayers using professionals should also remember that while their tax professional may be charging for additional work, in most cases they would prefer not to have this particular additional work. And of course, patience is still on the menu, as this particular mayhem sandwich is eaten one small bite at a time.

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