I have worked in the accounting profession since 1973. After 50 years, I thought I had seen it all, but recently I have noticed a new trend — taxpayers experiencing problems when paying their taxes by check.
One of my longstanding clients is in his mid-80s and does not trust making online payments. He pays most of his bills, including his taxes, by check. Doing so exposes him to issues with not only the tax authorities, but also the post office.
My client filed his 2022 tax returns in late September before the Oct. 16 due date. (He begrudgingly allowed me to electronically file his return.) Last week, he received a notice from the IRS stating that he owed $33,000 in tax, plus penalties and interest. Upon inspecting the notice, it became clear that the IRS did not credit him for the $33,000 first-quarter estimated tax payment he made in April 2022.
My client is a fastidious record keeper who made copies of the check, certified mail receipt, estimated tax voucher and envelope before mailing it. I told him that we needed a copy of the front and back of the cancelled check.
When he obtained that copy, the payee was changed from “United States Treasury” to the name of an individual. My client also wrote his Social Security number on the check, but fortunately he was not the victim of identity theft.
When I examined the online tracking report for the certified mail receipt, it showed that the envelope is still “moving through the USPS Network” and has been “in transit to the next mail facility” since April 6, 2022. So clearly the check was stolen while in the possession of USPS.
I asked my client if he reconciled his bank account. In an expletive-laden response, he insisted that he did. Unfortunately, he apparently failed to inspect the copies of the cancelled checks.
When he called his bank to report the fraudulent check, the bank told him it was more than 60 days from the date of his bank statement, so there was nothing the bank could do about the altered check. He is now fighting with them trying to recover the $33,000 embezzlement.
My client paid the balance due online while I wrote a letter requesting that the IRS abate the penalties it imposed. This was a very expensive lesson for my client.
My client is not the only one who pays taxes by check. On Oct. 16, I stopped by the Valencia post office to mail a birthday card to my grandson. When I tried to put the envelope into the lobby mailbox, I found that mailbox was overfilled and numerous envelopes fell out onto the floor. Several of those envelopes were addressed to the IRS lockbox.
I picked up the mail, waited in line and gave them to a postal clerk. When advised that the mailbox in the lobby was overflowing, the clerk nonchalantly responded the post office was aware of the problem; the mail had not been emptied from the mailbox all day because they were shorthanded.
When you pay by check, thieves know the IRS lockbox addresses, so it is easy to identify a payment. But tax refunds are sent in conspicuous envelopes as well.
I learned this the hard way. During the pandemic, the IRS misprocessed my 2019 tax return and did not correct the mistake until August 2022 when they sent me a letter stating that I should receive a check in approximately three weeks.
I never received that check, but I did receive a Form 1099-INT from the IRS stating that they paid me interest. After spending several months going down IRS rabbit holes, I finally received an affidavit from the U.S. Treasury containing a copy of the cancelled check. Someone stole the check and forged the signatures of my wife and me.
When the Treasury Department finally sent a replacement check, their cover letter suggested that I have future refunds directly deposited due to “uncertainties with mail delivery.”
I have also had clients who experienced processing difficulties when paying taxes to both the IRS and to state tax authorities by check. Since the pandemic, several of those payments were not properly processed by the tax authorities. In one instance the IRS lost a check after acknowledging receipt by signing a certified mail return receipt card.
Next month property tax payments will be due, followed thereafter by income tax payments. The moral of this story is that, if you pay your taxes by check, perhaps you should consider making future payments online.
Jim de Bree is a CPA who resides in Valencia. This column contains general information only and does not constitute rendering of professional tax advice.