Millions of taxpayers have received math error notices adjusting their returns, including the amount of recovery rebate credit (RRC), child tax credit, or other items claimed on their return. As of April 7, 2022, the IRS had issued 9.4 million math error notices of which 8.3 million of these are related to the RRC and the child tax credit. Math error adjustments, whether resulting in assessments of underpayments or reductions of claimed credits, bring with them several significant consequences if taxpayers do not act quickly. This blog will explain the difference between when the IRS makes adjustments using math error authority versus deficiency procedures, what taxpayers need to do when they receive a math error notice, and how the IRS can improve math error notices to better protect taxpayer rights – most notably, the right to be informed.
Deficiency Procedures vs. Math Error Authority
In a typical deficiency determination, if the IRS questions an item on a taxpayer’s return it will conduct an examination and ask the taxpayer to provide an explanation with documentation to substantiate the item(s) in question on their return. After providing this opportunity and reviewing the documentation, the IRS will send what is commonly called a “30-day letter,” which will propose no change if the IRS ultimately finds the explanation, or supporting documentation, provided by the taxpayer sufficient to substantiate the items on the return. However, if the taxpayer does not respond or if the IRS believes the documentation provided cannot support this item, the 30-day letter will propose an adjustment to which the taxpayer can agree, protest and request to go to Appeals, or do nothing, in which case the taxpayer will receive a statutory notice of deficiency, providing 90 days for the taxpayer to file a petition in the U.S. Tax Court. This process is called “deficiency procedures.”
In contrast, math error procedures give the IRS authority to bypass normal deficiency procedures in certain circumstances, allowing the IRS to make adjustments quickly, and offering fewer opportunities for taxpayers to contest the adjustments. Specifically, IRC § 6213 (b) and (g) identify the precise circumstances in which the IRS can make an assessment based on a math error, send the taxpayer a notice informing them of this adjustment, and then provide the taxpayer 60 days to request abatement of the assessment or reversal of the credit adjustment without having to provide substantiation. If taxpayers request abatement or reversal within the 60-day time period, the IRS must make the abatement or reversal and, if the taxpayer and the IRS don’t reach an agreement, the IRS must follow deficiency procedures to assess a tax increase (i.e., the case may go to Exam, the taxpayer will be given appeal rights and the IRS may issue a statutory notice of deficiency.)
If the taxpayer does not contest the notice within the 60-day time period, the IRS can immediately assess the liability, and move toward its normal collection procedures if the assessment is not paid, or retain the refund not paid due to the math error adjustment. After the 60-day time period has expired, the taxpayer can no longer challenge the adjustment in U.S. Tax Court; instead, the taxpayer must challenge the adjustment in the U.S. District Court or the U.S. Court of Federal Claims. If the taxpayer has a balance due, the taxpayer must first pay the tax and file a claim for refund to challenge the adjustment in one of these courts.
Math error procedures restrict taxpayers’ opportunities to contest IRS adjustments when compared with deficiency procedures. It is essential that taxpayers contest the adjustment within the 60-day time period, as this will allow them to dispute the math error adjustment without having to pay the tax, and without losing their right to be heard in the U.S. Tax Court.
What Taxpayers Should Do When Receiving a Math Error Notice
The IRS issues several variations of its math error notices, of which the most common are:
|We made changes to your return because we believe there is a miscalculation. You owe money on your taxes as a result of these changes.|
|We corrected one or more mistakes on your tax return. As a result, you are now either due a refund or your original refund amount has changed.|
|We made changes to your return because we believe there’s a miscalculation. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.|
Regardless of which math error notice a taxpayer may receive, here are tips on how to proceed:
- If taxpayers disagree with the notice, they should contact the IRS by the date provided in the notice, which is at the top right-hand corner of the first page. If taxpayers dispute the adjustment within the 60-day time period, the adjustment will be reversed. The case may then be sent to Exam where the taxpayer will then be able to support the item(s) being challenged.
- Taxpayers can call the IRS and request reversal of the adjustment, but as we all know, reaching the IRS by phone is beyond challenging (for filing season 2022 as of the week ending April 9, 2022, the level of service for the phone lines that serve math error notice recipients is just under ten percent). In light of this poor level of service on the phones, I recommend taxpayers send a letter to the IRS via certified mail requesting a reversal of the adjustment. Sending the request via certified mail ensures taxpayers will be able to show the request was made within the 60-day time period. This is especially important considering the IRS’s current struggles to open and process correspondence. (See my blog describing the IRS backlog and solutions to remedy the problem.)
- As mentioned above, if taxpayers don’t agree with the notice but the 60-day period for requesting reversal has passed, taxpayers may still be able to challenge the adjustment administratively. However, taxpayers will need to provide documentation showing that they in fact reported the item correctly and no error was made. See IRM 126.96.36.199.3, Processing Responses to Math Error Notices. If the IRS finds the documentation is insufficient, the IRS will not reverse the adjustment. If the adjustment results in a reduced refund or no tax due, the taxpayer may contest the adjustment by filing suit in a U.S. District Court or the U.S. Court of Federal Claims. If the adjustment results in a liability, the taxpayer must pay the liability prior to filing suit in one of these courts.
- In limited situations, taxpayers may challenge the math error adjustment in U.S. Tax Court, even if they did not request abatement of the tax within the 60-day time period. For example: If the IRS takes collection action against the taxpayer and sends a Letter 11, Notice of Intent to Levy and Notice of Your Right to a Collection Due Process Hearing, the taxpayer may request a collection due process (CDP) hearing and petition the U.S. Tax Court for review of the Appeals CDP determination. The taxpayer may challenge the adjustment at the CDP hearing because receiving a math error notice is not a prior opportunity under IRC § 6330(c)(2)(B) that would otherwise prevent the taxpayer from disputing the liability. For an in-depth discussion of collections, see NTA blog: An Overloaded IRS Stops Certain Automated Notices.
The IRS Has Recently Made Positive Changes to Math Error Notices But Other Improvements Are Still Needed
As you can see, the use of math error authority comes with significant consequences for taxpayers. This is why it is critical that math error notices are clear and concise. Recently the IRS has improved math error notices by including the date by which taxpayers must request abatement – both at the top of the notice and in the first paragraph. (TAS recommended this previously in the 2018 Annual Report to Congress and a 2021 Math Error Blog.) This ensures taxpayers know exactly when they must contact the IRS to request abatement, essentially electing deficiency procedures.
Despite these improvements, math error notices remain vague and confusing. For example, taxpayers who receive a math error notice adjusting the RRC claimed on their return may be given all of the following as possible reasons for the adjustment:
“We changed the Recovery Rebate Credit:
- Primary or secondary SSN missing or invalid,
- Dependent exceeds the age limit,
- AGI exceeds limit, or
- The amount was incorrectly computed.”
Taxpayers are left to review their returns in order to determine the exact reason for which the RRC was adjusted.
I reiterate TAS’s recommendation that the IRS revise its math error notices to provide taxpayers with precise reasons for the adjustment, rather than listing out numerous possibilities. See National Taxpayer Advocate 2021 Purple Book, and my August 2021 math error blog.
Taxpayers are often confused by IRS notices, and math error notices are no exception. We applaud the IRS for updating its math error notices by including the 60-day expiration date by which taxpayers must contest the adjustment and have it reversed, rather than placing the burden on the taxpayer to calculate the date. It is key for taxpayers to understand that once the 60-day time period has elapsed and the taxpayer has not requested a reversal, they lose their opportunity to have the matter reviewed by 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. Taxpayers, however, would still have the option to pay the tax and file a refund suit in a U.S. District Court or the U.S. Court of Federal Claims. Unfortunately, this means taxpayers would need to have the funds on hand to pay the liability and then dispute the adjustment. This may be challenging for many taxpayers, including low-income taxpayers, particularly when considering the economic impact of the COVID-19 pandemic during the past two years.
Eligible taxpayers can contact a Low Income Taxpayer Clinic (LITC) for assistance with this issue. LITCs are independent from the IRS and TAS; they represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS, including math error adjustments. LITCs can also represent taxpayers in audits, appeals, tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. If a taxpayer receives a math error adjustment, they should contact the IRS, an LITC, or other tax professional as soon as possible to protect their rights. For more information or to find an LITC near you, visit Low Income Taxpayer Clinics (LITC) – Taxpayer Advocate Service or see IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is also available online at www.irs.gov/forms-pubs or by calling the IRS toll-free at 800-TAX-FORM (800-829-3676).