Tax Expert: IRS Announcement Is ‘Nearly Unprecedented’

Trays of printed social security checks wait to be mailed from the U.S. Treasury's Financial Management services facility in Philadelphia, Pa., on Feb. 11, 2005. Bradley C. Bower/AP Photo

A tax expert said that a recent Internal Revenue Service (IRS) alert to millions of taxpayers that they should hold off on filing their tax returns is unprecedented.

On Feb. 10, the IRS issued new guidance on special payments that were made by 21 states last year. The came about a week after the agency told taxpayers to hold off so as to provide additional guidance on those payments and whether they are subject to federal taxes.

“The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the IRS said in its latest update. “The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” it said.

But for one tax expert, the announcement earlier in February to delay filing is highly unusual.

“I know when we had the American Rescue Plan back in 2021 and we got that late guidance on the part of unemployment being excluded, but I have been doing taxes for 32 years, I am not aware the IRS has said to wait on filing,” Tom O’Saben, the director of Tax Content and Government Relations with the National Association of Tax Professionals, told The Center Square.

O’Saben added that he cannot recall a similar instance of the IRS making such a request. “It’s nearly unprecedented, yes,” he said.

In a prior news release, the IRS said it is recommending people who have already filed their tax returns not to file an amendment. O’Saben said he agrees with the agency’s assessment.

“For those who have already filed their returns, don’t do anything,” added O’Saben, who gave his interview with the Center Square before the agency issued its revised guidance. “We believe that for more than 90 percent of the population, it is probably a non-event.”

A watchdog within the IRS on Feb. 9 faulted the agency for telling taxpayers to delay filing their returns for about a week, saying that the IRS should have known about the state payments. That came a day before it issued the revised guidance.

“The impact of the delay in providing timely information and guidance is hard to overstate,” the Taxpayer Advocate Service (TAS), a federal agency within the IRS, wrote on its website. “Giving taxpayers a choice between waiting to file their returns and receive their refunds or filing returns now that the IRS may later determine to be inaccurate is not acceptable.”

The Internal Revenue Service (IRS) building in Washington on Feb. 19, 2014. Jim Watson/AFP/Getty Images

Taxpayers who have already filed their returns “likely will need to file amended returns to exclude the payments if the IRS determines they are not taxable,” it said. “That means they will need to spend time and money to file amended returns and then wait for their refunds, and it means the IRS will have to devote resources to processing amended returns and issue refunds,” the agency also said.

What the IRS Said

The IRS said on Feb. 10 that it won’t “challenge the taxability of payments related to general welfare and disaster relief,” impacting people in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island who got state payments.

Payments from Georgia, Massachusetts, South Carolina, and Virginia that are refunds of state taxes paid and “either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit,” such payments are “not included in income for federal tax purposes,” the tax agency said.

In its Feb. 3 statement, the IRS noted that there are a “variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex” and that “we expect to provide additional clarity for as many states and taxpayers as possible next week.” It then advised taxpayers to wait or seek out a tax professional.

Earlier this year, the IRS officially announced that Jan. 23 would be the start of the 2023 tax season. The deadline to file is April 18, 2023.

According to the IRS’s website, taxpayers should expect to receive their 2022 tax refund within about 21 days of submitting their return if they file electronically. Those who have the Earned Income Tax Credit or Additional Child Tax Credit will likely have to wait longer, the website says.