Refund delayed? Our ability to help may be limited.
In a previous blog, Lifecycle of a Tax Return, we set out the initial stages of a return’s journey once it’s been filed, including certain detours a return may take as it goes through reviews prior to being posted on IRS systems. One of these detours is a review by the IRS’s Error Resolution System (ERS) where the return is reviewed for possible errors or omissions. This filing season ERS has experienced a significant backlog causing delays in refunds. To verify the accuracy of the Recovery Rebate Credit (RRC), Earned Income Tax Credit (EITC), Child Tax Credit (CTC) or Additional Child Tax Credit (ACTC), the ERS Unit is manually reviewing all returns where the taxpayer has claimed the RRC or used their 2019 earnings for the purpose of calculating the EITC, CTC, and ACTC. For more details on the backlog in processing returns, see the National Taxpayer Advocate’s 2022 Objectives Report to Congress, Review of the 2021 Filing Season.
To correct mathematical and clerical errors appearing on a return, the IRS may summarily assess additional tax using its math error authority as provided by Internal Revenue Code (IRC) § 6213. The IRS is currently correcting more errors on returns and issuing more math error notices than in previous years. Specifically, in calendar year (CY) 2020 through July 15, 2020, there were 628,997 math error corrections made on returns filed by taxpayers. For the same time period in 2021, the IRS made about 9 million math error corrections on returns filed by taxpayers, about 7.4 million of which were related to the RRC.
So, what do taxpayers need to consider when receiving an adjustment to their return via a math error notice, and how can these processes be improved?
Congress has given the IRS the authority to bypass normal audit and deficiency procedures in favor of an abbreviated process known as math error authority. This authority was initially designed to allow the IRS to assess a tax liability by quickly resolving simple mathematical or clerical mistakes on the return specified in IRC § 6213 (b) and (g) and assessing the adjusted tax. Initially, Congress reserved this authority for the simplest mathematical errors, such as 1 + 1 = 3. It later expanded the authority to include situations where the taxpayer made a clerical error (e.g., inconsistent entries on the face of the return), and this authority was expanded once again to include omissions of certain information like required taxpayer identification numbers (TINs), or Social Security numbers (SSNs) that don’t match the ones in the Social Security Administration’s database. If taxpayers don’t agree with the math error adjustment, they have 60 days from the time the IRS sends a math error notice to request abatement of a math error assessment. If the taxpayer requests abatement, the IRS must comply and abate the assessment. After the abatement is made, the IRS must follow the deficiency procedures to reassess the tax. The IRS cannot collect the assessed amount during the 60-day period that the taxpayer has to request abatement.
Although this authority can be a useful tool for the IRS when used appropriately, it comes with risks for taxpayers, namely, missing the opportunity to dispute the assessment in the U.S. Tax Court if taxpayers do not timely object to the assessment. This is why notice clarity, explaining both the tax issue and the taxpayer’s right to request abatement of the tax, is so important.
When the IRS makes a math error adjustment, it will send the taxpayer a notice (most commonly a Computer Paragraph (CP) 11 or CP12) informing the taxpayer of the adjustment, correction, and balance due or corrected refund amount, and which should also include language informing the taxpayer of the right to request an abatement within 60 days of the notice being sent.
After receiving the notice, taxpayers can either accept the changes the IRS made and pay the amount due, accept the reduction of a credit, or request abatement within 60 days of the notice being sent.
If a taxpayer accepts the adjustment but is unable to pay the entire amount due, the taxpayer can work with the IRS to request an installment agreement, offer-in-compromise, or ask to be placed in currently not collectible status. If a taxpayer requests an abatement within the 60-day time period, they can submit documentation showing why the adjustment in question is in fact incorrect, or the taxpayer can request abatement without providing supporting documentation; either way the math error assessment must be abated. If the taxpayer provides supporting documentation and the IRS agrees, the abatement will be input and a notice will be sent (most likely a CP21) informing the taxpayer the matter has been closed. However, if the IRS does not agree that the documentation provided substantiates the taxpayer’s claim, or if the taxpayer did not provide supporting documentation when requesting the abatement, the IRS, after consideration, may reassess the tax by following deficiency procedures (i.e., sending the taxpayer a statutory notice of deficiency).
If a taxpayer fails to request abatement within the 60-day time period, the math error assessment will not be abated, the assessment will be final and the IRS can move towards collection. Taxpayers need to understand that without a timely abatement request, they lose their opportunity to receive a statutory notice of deficiency.
Once the 60-day time period has elapsed and the taxpayer has not requested abatement, the math error assessment is final and cannot be reviewed in the U.S. Tax Court. This is significant, because the Tax Court is the only judicial forum in which a taxpayer does not have to pay the tax liability before petitioning the court. However, one option for these taxpayers would be to pay the tax and file a refund suit in the U.S. District Court or the Court of Federal Claims. But this means taxpayers would need to have the funds on hand to pay the liability and then dispute the assessment. This may be challenging for many taxpayers, including low-income taxpayers, particularly when considering the economic impact of the COVID-19 pandemic.
Responding within the 60-day time period is critical for taxpayers to dispute the math error assessment. This means taxpayers must understand exactly what changes the IRS made, what they need to do if they don’t agree, and what will happen if they do nothing. Unfortunately, because the math error notices do not clearly articulate what was adjusted and why, taxpayers are often left confused as to what changes have been made to their return, making it difficult for taxpayers to determine whether they agree or disagree with the changes. Many math error notices are vague and do not adequately explain the urgency the situation demands. In fact, in some instances, math error notices don’t even specify the exact error that was corrected, but rather provide a series of possible errors that may have been addressed by the IRS through its math error authority. Additionally, taxpayers won’t learn what steps they should take if they don’t agree with the math error assessment, including the 60-day time period, until the middle of page 2 of the notice, where they are directed to call the IRS if they have questions about the adjustment. The 60-day requirement does not jump off the page, is not sufficiently evident, and does not include an exact date by which the taxpayer must respond.
This filing season, over 5 million math error notices were erroneously issued omitting the 60-day time period language entirely where the only adjustment was to the RRC. Taxpayers were not informed of their rights and the ability to request an abatement. A forthcoming blog will delve into this issue by discussing the problems it raises for taxpayers and offering recommendations and potential solutions. The issues surrounding these notices diminish the taxpayer’s right to be informed.
Taxpayers who receive these confusing math error notices will likely reach for their phones to call the IRS, asking for a clear explanation as to what the notice means. Unfortunately, they may have a difficult time reaching the IRS because of its poor level of service. From January 1 through June 30, 2021, the level of service (LOS) for Accounts Management (AM) phone lines was only 16 percent. Although it is understandable that the LOS during this unprecedented time would be lower than in past years, even the LOS during “normal” times left hundreds of thousands of calls unanswered. Specifically, for the same time period last year, AM’s LOS was almost 56 percent, meaning more than 40 percent of all calls to this help line went unanswered.
Math error authority can be a useful tool by which the IRS can quickly adjust simple mathematical and clerical errors. However, over the years this authority has been expanded to include more complex situations, which in some cases have made math error notices more difficult for taxpayers to understand. These notices may leave taxpayers confused as to what has been adjusted on the return and what they need to do to dispute it, possibly resulting in their missing the opportunity to challenge the assessment in U.S. Tax Court. Thus, the desire to quickly assess tax by correcting seemingly simple mistakes must be balanced against the risk such a process has of curtailing a taxpayer’s right to dispute the assessment. These risks are magnified when the reason for the assessment and what needs to be done to dispute it are not being clearly communicated. It is critical that the IRS’s math error notices provide clear explanations as to what is being adjusted and instructions for taxpayers on how to dispute the math error assessment.
To ensure taxpayers have a full understanding of the process, we will continue to encourage the IRS to recognize the taxpayer’s right to be informed by reexamining its math error notice language and identifying opportunities where the notices should be clarified.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.