I just sent the first note off via my senators' website. Please like so others will see this and act.
Subject: E-filing Processing error (Form 8960) is erroneously rejecting returns
Dear Senator ___________, (Reps are just Mr., Ms, or Mrs.)
I wanted to draw your attention to an issue at the IRS. The IRS has a known error related to Form 8960, Net Investment Income Tax. As with everything in taxes, it is a bit complicated to explain. I will do my best high-level explanation and if more information is needed, please reach out.
The profit or loss from non-W-2 wages is added on line 4a. Income here would include, for example, compensation reported on a Form 1099 and income from a real estate venture. Line 4b is income from a “non-passive” source. That figure is deducted from Line 4a, and the net is used in the tax calculation that separates active, passive and investing income as required by The Tax Reform Act of 1986. Tax software systems are correctly completing this process, however, there is an issue on how the IRS processes the electronic filing.
My personal experience has been with TurboTax, a leading tax software program for individuals to use. Shortly after e-filing, my return was rejected. The IRS is erroneously assuming the income on line 4a is from real estate ownership, which would require a Schedule E, Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.) to be included with the return. My 4a amount is from a miscellaneous 1099 for a business in which I actively participated. Despite line 4a and 4b being the same figure, resulting in no passive income, my filing was rejected (F8960-019-04) for the lack of a Schedule E, or more specifically, no amounts on Schedule E. Again, no Schedule E is required.
The result of this issue will negatively impact electronic filings for many tax payers who file a Schedule C. This would include people in the trades, independent contractors, and anybody with a “side hustle” when they are unable to get their return filed and, more importantly, get their refunds. While paper filing is an option, doing so will add at least six additional weeks from the time the IRS receives the return to get one’s refund. The IRS’ reputation for addressing paper returns makes me think that delay could be understated by weeks, if not months.
Some individuals have noted that they filed electronically after switching to H&R Block’s tax software. First and most obviously, this is duplicating their time, effort, and cost to complete their taxes. There could be consequences later because a Form 8960 was not filed.
As I noted earlier, this is a known issue that is included on the 2022 spreadsheet of issues:
https://www.irs.gov/pub/irs-schema/ty[product key removed]s-and-solutions.xlsm
Earlier in the week, Line 74 stated that the issue was logged 1/17/2023 with a projected resolution date of 2/5/2023. Recently, that information changed. The same issue on the same line now has a 2/1/2023 entered date (overriding 1/17/2023) with the projected date cell now stating “Business Rules will be updated sometime in late February to mid-March 2023.”
So now after waiting 10 days for the February 5 fix to arrive, it is pushed to mid-March. Maybe even later if the IRS makes a change like they just did. This is insane that it is not already resolved.
I would respectively ask that you look into this issue and convince the Treasury Department immediately address this programming bug.
Sincerely,
{full name}
