Yesterday the IRS updated its Fact Sheet (FAQ) on the Child Tax Credit (CTC) and the Advance Child Tax Credit (ACTC) with additional information on reconciling the credit on 2021 tax returns. The IRS took this step after acknowledging that the letter (Letter 6419) it had been encouraging taxpayers to rely on to accurately reconcile the amount of the CTC on their tax returns could be wrong.
Letter 6419 Inaccuracies
Letter 6419 could be wrong if it was printed and/or mailed in December and the payment was returned by the bank or the postal service. It could be wrong if the taxpayer alternates custody of one or more qualifying children every other year. And, it could just 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 is less than reassuring when you are one of the taxpayers in question (or when you are that taxpayer’s tax professional).
What To Do?
According to IRS Fact Sheet 2022-5, “For the majority of taxpayers, the advance payments total in Letter 6419 will match the total in the IRS Online Account.
If the advance payments total differs between their Letter 6419 and their IRS Online Account, they should rely on the total in their Online Account. If the person believes they received a different amount than what 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rely on the Child Tax Credit Update Portal or Tax Transcripts for the advance payments total; this information may be outdated.”
IRS Fact Sheet 2022-7, however, updated Question H10 (which advises taxpayers on what to do if the Child Tax Credit Update Portal shows that a payment was issued but the taxpayer did not receive it) to advise the following:
“Review your payments in the Child Tax Credit Update Portal to ensure the payment was not returned. If you did not receive the payment and the payment was not returned, you may request the IRS to trace the payment. If it is determined the payment was not received or was returned to the IRS, IRS records will be updated, and you can exclude the payment from the aggregate amount of advance Child Tax Credit payments you report on your tax return. This will allow you to claim, if eligible, the missing payment with your Child Tax Credit on your 2021 return. Contact the IRS, as soon as possible, from 7 a.m. to 7 p.m. 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 amount that is displayed in your Child Tax Credit Update Portal.”
Answer H10 fails to note that tracing a payment, even under the best of circumstances, can take 4 to 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 taxpayer calls in fiscal year 2021. What the IRS has been painfully clear about, however, is that filing an inaccurate return will cause the return to be placed in a queue for manual review and that manual processing will cause processing and refund delays. Indeed 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 correspond with taxpayers but does require special handling by an IRS employee so, in these instances, it is taking the IRS more than 21 days to issue any related refund and in some cases this work could take 90 to 120 days.” In other words, it’s taking the IRS 3 to 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 Conflicting 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 more recent fact sheet instructs taxpayers to use the Child Tax Credit Update Portal (the portal) to ensure the payment was not returned. So exactly which IRS information is the taxpayer supposed to rely on? And under what circumstances? It appears that the taxpayer’s best bet at for finding accurate information is using their IRS Online Account. For taxpayers who do not already have an IRS Online Account and/or IRS identity validation, getting an account requires internet access and identity validation that can be almost as difficult to obtain as reaching 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 is not surprising given that they use the same access credentials. Adding to the confusion is that the “online account transcript” is distinctly different (and more up to date) than the “tax transcript.” The distinction between those two transcripts is even getting lost among tax professionals given the firehose of credit reconciliation information currently being published.
- Letter 6419, is most likely correct, but should be verified if the taxpayer thinks it is 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 in Letter 6419 is correct.
- The taxpayer’s IRS Online Account is, according to the most recent information from the IRS, the source of the most accurate information on advance payments of the CTC.
- The taxpayer’s tax transcripts are different from the transcripts provided in the taxpayer’s IRS Online account and could be less accurate and, therefore, should not be relied upon by taxpayers or tax professionals when reconciling advance payments of the CTC on Form 1040.
Taxpayers definitely should try to verify advance CTC amounts received with what has been reported by the IRS on Letter 6419. Taxpayers who have IRS Online Accounts have the best shot at getting the most up-to-date and accurate information. Taxpayers who use a tax professional should also be aware that this may create delays in tax return preparation and that they may be charged for the extra work required to reconcile the credit if Letter 6419 does not agree with the advance payments received. Taxpayers using professionals should also remember that, while their tax professional may be charging for the additional work, in most cases they would much rather not have this particular bit of additional work. And, of course, patience is still on the menu as this particular sandwich of chaos is being eaten one small bite at a time.