Alert for SC Tax Professionals: IRS System Error Causing Erroneous Late Filing Notices

South Carolina CPAs, take note: The IRS has confirmed a systemic input issue that caused erroneous late filing penalty notices for taxpayers in disaster-affected areas. We have learned some South Carolina zip codes were not correctly flagged for disaster relief, leading to unnecessary penalty assessments and, in some cases, improper enforcement actions.

What You Need to Know

SCACPA has been in contact with the IRS, which acknowledged the issue and began corrections as of January 30, 2025. However, our understanding is taxpayers and tax professionals are responsible for verifying that their clients’ accounts are coded correctly.

How to Protect Your Clients

1. Check IRS Transcripts for Correct Coding

• Pull transcripts for affected clients and look for Transaction Code (TC) 971 AC 688, which flags the account for disaster relief.
• If this code is missing, your client’s account may still be subject to late penalties or enforcement actions.

2. Request a Hold to Prevent Collections or Levies

• The IRS recommends that CPAs request a “hold/staup” on impacted accounts to prevent enforcement until disaster relief coding is applied.
• This step can help protect clients from collections, levies, and additional penalties.

3. Send 504b and 504 Notices to the IRS for Review

• If your client received an IRS 504b or 504 late filing notice, fax a copy to the IRS for further review.
• The IRS may be able to escalate the issue and request a hold on enforcement.

4. Use the Bulk Request Option for Multiple Clients

• The IRS has a bulk request process for practitioners assisting multiple affected clients.
• Details on submitting bulk requests are available here: Bulk Requests for Disaster Relief – IRS.