We have written before about Math Error here, here, here and here. Last week, the National Taxpayer Advocate (NTA) wrote a very nice blog post explaining math error but also providing some surprising details on the volume of math error notices sent out during the past filing season. This is the first of a two-part post by the NTA on math error. If the second post is as good as the first, it will be worth the read.
The IRS has pushed to expand math error authority for many years. The combination of the direct path to assessment coupled with its confusing notice to taxpayers that leaves most of them wondering what they received makes this an easy path to move cases into collection without the hassle of having to send a notice of deficiency and possibly have the taxpayer file a Tax Court petition. Of course, the alert taxpayer can write and contest the math error notice triggering the opportunity for a notice of deficiency, but this process just makes it easier to get to assessment.
It’s not just me complaining that the math error notices lack clarity. Here is what the NTA says about them:
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.
She points out that the math error notice does not describe the steps the taxpayer must take to disagree with the notice and trigger a notice of deficiency until the middle of the second page “where they are directed to call the IRS if they have questions about the adjustment.” Directing taxpayers to call the IRS does not create an easy path to getting answers. Assuming they get through, just how thoughtfully do you think the person answering the phone will advise the taxpayer regarding the decisions to be made when confronted with a math error notice? The default should be to object if the taxpayer is unsure if the notice is correct, but that’s not what the taxpayer will pick up from the notice itself or from a phone call to an IRS assister. The NTA also points out the problem of getting through to an assister.
The NTA recommends improving the language of the notice. I agree with that recommendation but would like to see a more robust system for engaging the public in the drafting of notices and particularly the notices that go in high numbers to low-income taxpayers.
Speaking of high numbers, here is where the blog post surprised me. She states:
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.
I thought 5 million was a high number of math error notices, but apparently it is only the number of notices sent to people claiming the Recovery Rebate Credit.
Are these notices valid if they don’t tell taxpayers when they must object in order to avoid having the assessment become permanent? In Malone v. Commissioner, TC Summary Op. 2011-24, the Tax Court in a non-precedential opinion held that a portion of the assessment based on math error was invalid because the IRS letter did not notify taxpayers that the adjustment was “based on a mathematical error, did not set forth the specific error alleged, and did not adequately explain such error” where the letter simply states “[the IRS has] processed your Amended Return.”. Les has recently updated the discussion of math error in the treatise “IRS Practice and Procedure” at Chapter 10.04[a] for those seeking a deeper discussion.
Section 6213(b)(1) provides for math error assessments as an exception to the normal deficiency procedure. It states in its final sentence that “Each notice under this paragraph shall set forth the error alleged and an explanation thereof.” It does not state in that subsection any time frame.
Section 6213(b)(2)(A) provides for the abatement of math error notices in certain situations. It says “a taxpayer may file with the Secretary within 60 days after notice is sent under paragraph (1) a request for an abatement of any assessment specified in such notice, and upon receipt of such request, the Secretary shall abate the assessment.” It does not say that the IRS needs to tell the taxpayer about the 60-day period. It only says there is a 60-day period.
The math error provision does not require that the IRS include in the notice the last date to object to the assessment. With the deficiency notice the IRS must tell the taxpayer the last day to file a Tax Court petition. Here, there is no such requirement imposed and, therefore, no easy basis for these five million taxpayers to know to contest the assessment.
As the IRS uses math error more and more, taxpayers need to understand the power of this procedure and be prepared to protect their right to contest the liability in situations where they do not agree. To do this they need information. They need a letter that clearly explains the next steps and phone assistance for those who struggle with letters. If a taxpayer misses the deadline to request an abatement of the liability, they have the chance to contest the merits in a collection due process (CDP) case, but it is much better to contest up front than to do so while the liability is in the collection stream.