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Love Letters & the IRS (Recovery Credit Tax Notices Part II)
IRS is processing its backlog and is issuing lots of “love letters” otherwise known as Tax Notices.
Many of the 2020 Tax year tax notices are for Recovery Credit. For Tax Year 2020, Taxpayers not receiving the the full stimulus amount for both payments ($1200 per adult and/or $500 per child received March -May 2020 and $600 for adult or child for December 2020-February 2021) before their tax return was filed could claim the balance or short fall as a credit on the 2020 Tax Return. This Credit for missing or “short” stimulus payments claimed on the tax return is called the Recovery Credit (see instructions for 2020 Form 1040 line 30).
The IRS will issue a Tax Notice for Recovery Credit when Taxpayer’s 2020 Tax Return shows a Recovery Recovery Credit and the IRS records show Taxpayer received all of their Stimulus payments or a different amount. Taxpayer’s receiving an IRS notice for Recovery Rebate Credit should first:
- Check the tax return. Does the IRS Notice match the taxpayer’s 2020 filed return income and credit amounts (usually reported on page 2 of the Notice)? Was the refund to be direct deposited?
- Check Taxpayer bank records for March—May 2020 and December 2020 through February 2021. Ask the bank for help if needed. Did Taxpayer find the IRS Economic Impact Payments (Stimulus payments) received?
- If Taxpayer finds that they have received the “missing” stimulus payment(s) and/or they have received the full amount of their stimulus, ask preparer to review the Notice as a precaution. If IRS is correct, then nothing needs done to accept IRS calculations as correct. If Payment is due, pay promptly. IRS Notice interest accrues by the month.
- If Taxpayer still can’t find the missing stimulus payment IRS thinks taxpayer received, Taxpayer’s can ask for stimulus payment trace . (See QF3 hyperlink information or Form and instructions for Form 3911). Trace takes approximately 4-6 weeks. If Trace information indicates that the payment was not received can use the Trace information to dispute the IRS Recovery Credit Notice.
Don’t want to receive any IRS “Love letters”? Be accurate in reporting all payments (including Stimulus Payments) received and all expenses paid and keep tax records for FOUR years after the