Popular search terms:

MSP #11: Post-Processing Math Error Authority

The IRS Has Failed to Exercise Self-Restraint in Its Use of Math Error Authority, Thereby Harming Taxpayers

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #11-1

Limit the circumstances in which the IRS will use MEA (including post-processing MEA).

IRS RESPONSE TO RECOMMENDATION: The IRS is charged with using resources appropriated to administer the Internal Revenue Code. In most instances, when a math error is identified during the processing of a return, taxpayers are sent a notification when the situation is identified. By not utilizing existing math error authority, IRS would effectively delay the resolution of taxpayer errors in the processing of returns.

The IRS will continue to evaluate the potential use of all math error authority provided by Congress and consider the context of how a taxpayer’s information is presented on the tax return and the reliability of the sources of other information when making a summary assessment. As highlighted in the NTA’s description of this issue, the IRS does not use the Federal Case Registry to deny the Earned Income Tax Credit (EITC) to any taxpayer because we have determined that the information in the Federal Case Registry is not reliable.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that the IRS does not adjust a taxpayer’s return using MEA simply because the return does not match the relatively unreliable data found in the Federal Case Registry. Doing so would unnecessarily burden taxpayers, deprive them of benefits to which they are entitled, and waste IRS resources. For the very same reason, it would make sense for the IRS to adopt a policy statement that, in effect, pledges not to waste resources and unnecessarily burden taxpayers in the future.

The IRS’s refusal to adopt such a common sense policy should make Congress think twice before expanding the IRS’s MEA. Moreover, the IRS’s failure to establish a policy on how it will use MEA or post-processing MEA leaves the IRS open to criticism by other stakeholders who might recommend that it use its MEA or post-processing MEA in an unproductive or potentially unconstitutional manner.

In addition, the National Taxpayer Advocate disagrees with the portion of the IRS’s response which suggests that by not using existing math error authority, IRS would effectively delay the resolution of taxpayer errors in the processing of returns. As the report points out, returns subjected to the math error process are sometimes correct. In such cases, any IRS inquiry is a waste of resources and unnecessarily burdensome. For returns that are actually wrong, the IRS can reject those that contain certain defects. It can correspond with taxpayers about discrepancies. In appropriate situations it can and should use its regular MEA. It should generally avoid using post-processing MEA, however, because it delays resolution of errors, burdens taxpayers, and has fewer procedural protections than exams. By establishing a policy statement addressing when it is appropriate to use each of these tools, the IRS could demonstrate that it takes seriously its responsibility to uphold taxpayer rights and avoid wasting resources.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

2
2.

TAS RECOMMENDATION #11-2

Voluntarily adopt the limits on the use of MEA recommended to Congress by the National Taxpayer Advocate in her 2015 annual report.

IRS RESPONSE TO RECOMMENDATION: Math error authority provides the IRS with a valuable tool to address mathematical or clerical errors on tax returns in appropriate cases. Math error authority allows the IRS to effectively and efficiently adjust returns and prevent erroneous refunds from being issued. The IRS recognizes that taxpayer rights are an important consideration in the use of math error authority.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate agrees with the IRS that MEA is a valuable tool. It can, however, be misused. For this reason, she recommended that the IRS only use MEA in the following situations:

  1. There is a mismatch between the return and unquestionably reliable data.
  2. The IRS’s math error notice clearly describes the discrepancy and how taxpayers may contest the assessment.
  3. The IRS has researched the information in its possession (e.g., information provided on prior-year returns) that could reconcile the apparent discrepancy.
  4. The IRS does not have to analyze facts and circumstances or weigh the adequacy of information submitted by the taxpayer to determine if the return contains an error.
  5. The abatement rate for a particular issue or type of inconsistency is below a specified threshold for those taxpayers who respond.
  6. For any new data or criteria, the Department of Treasury, in conjunction with the National Taxpayer Advocate, has evaluated and publicly reported to Congress on the reliability of the data or criteria for purposes of assessing tax using math error procedures.

The IRS could issue a policy statement adopting these common-sense limits. Doing so would minimize risks to the taxpayer’s right to pay no more than the correct amount of tax or to challenge the IRS’s position and be heard. It would also help prevent the IRS from wasting resources on incorrect assessments that generate unnecessary correspondence and taxpayer burden. It will be more difficult for the IRS to make the case that Congress should expand its MEA if it is unwilling to adopt such reasonable limits on how it will use its authority. Without such a policy statement, it may also be more difficult for the IRS to explain to certain stakeholders why it is not using MEA more aggressively. Moreover, the IRS response does not explain why it is opposed to these reasonable limits.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

3
3.

TAS RECOMMENDATION #11-3

Require the IRS to alert taxpayers to any discrepancies as early as possible, for example, by rejecting an e-filed return, where permissible, rather than waiting to use MEA, or waiting even longer to use post-processing MEA.

IRS RESPONSE TO RECOMMENDATION: ​​We aim to inform taxpayers at the earliest opportunity when there is an issue with their tax return, allowing them time to correct math errors with the least amount of taxpayer burden. For example, the IRS currently uses business rules to reject electronically-filed returns in appropriate cases, and routinely considers whether new business rules should be adopted to enhance the efficiency of electronic return processing.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that the IRS agrees with her that in cases where a return is wrong, it should alert taxpayers to the discrepancy as early as possible, for example, by rejecting an e-filed return, where permissible, rather than waiting to use MEA, or waiting even longer to use post-processing MEA. She does not agree, however, that the IRS has implemented her recommendation to “adopt a policy statement (or similar guidance)” to this effect. Establishing such a policy would explain to new leaders at the IRS how they should exercise their authorities. It would also help the IRS resist calls from stakeholders who believe it should use MEA when it could have rejected returns at the outset, or that it should use post-processing MEA when it could have used MEA or deficiency procedures.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

en English
X