Nothing strikes fear into the hearts of taxpayers like an unopened letter from the IRS. There’s something about seeing the familiar black and white envelope—typically, only refund checks have color—that makes you feel that something must be wrong.
And increasingly, there’s a reason for it.
Over the past year, the IRS has been slow to process tax returns but has appeared to continue to issue failure-to-file and failure-to-pay notices. That has clogged mailboxes with letters seeking returns that have already been filed or payments that have already cleared.
As those notices frustrate taxpayers, the IRS has ramped up issuing other correspondence—specifically, math error notices. While the IRS made 628,997 math error corrections last year through July 15, 2020, the IRS made about 9 million math error corrections on returns filed by taxpayers in the same period in 2021—a more than 1400% increase.
What accounts for the increase? Most of those notices—about 7.4 million—were related to the refund recovery credit, or RRC. The RRC is claimed on Form 1040 to reconcile stimulus payments received in 2020. Most likely, taxpayers made errors when calculating the amounts of the checks due or actually received.
But the remaining notices—still at a pace of two-and-a-half times more than in the prior year—were issued by the IRS for other reasons.
Here’s how math errors work. It’s not as simple as it sounds—your failure to carry the one when subtracting, or adding too quickly.
The IRS has broad discretion under tax code Section 6213 to assess tax liability involving mathematical or clerical mistakes. The latter used to be what you and I would consider a typo, like transposing numbers, but the scope of what the IRS believes to be a clerical error has expanded over the years to include missing Social Security numbers and more.
When the IRS makes the adjustment, it will issue a notice—typically a CP11 or CP12—by mail. The notice is supposed to make clear what it adjusted and then advise if there is a change to the amount due or to be refunded, but that’s often not the case. Sometimes, the notices are just confusing.
If you’ve ever received one of these notices, you know what I mean. It may be the case that the notice clearly states the problem like, “We didn’t allow part or all of your child tax credit and/or additional child tax credit…One or more of your children exceeds the age limitation.”
But often, the notice provides a list of things that might have gone wrong like, “The Social Security number of one or more individuals claimed as a qualifying dependent was missing or incomplete” and “[t]he last name of one or more individuals claimed as a qualifying dependent does not match our records” without pinpointing the exact problem. Or, if the IRS believed that you picked the wrong filing status, that statement may be followed by a list of credits or deductions that could be affected.
If it’s a clear math error, it’s easy to determine whether you agree with the IRS’ notice. But if you can’t identify the problem, you may not understand if it’s appropriate to ask for a correction.
Responding to the notice, as with most IRS notices, is critical. And timeliness matters. You typically must respond to a math error notice within 60 days. If you don’t respond within that window, the math error assessment is considered final, and the IRS can begin collections. But more importantly, if you don’t respond within those 60 days, you lose your right to file a petition in the U.S. Tax Court.
If you feel like you’ve missed a step, you’re not wrong. Most Tax Court actions begin after you receive a Notice of Deficiency, sometimes called a 90-day letter since, if you want to challenge the liability, you have 90 days (150 days for taxpayers outside of the country) from the date of the notice to file a petition with the Tax Court.
But, under tax code Section 6213(b)(2)(A), if you don’t make a timely abatement request in response to a math error notice, you lose the opportunity to receive a statutory notice of deficiency.
Missing this opportunity can be more than just a headache: If you file a petition in Tax Court, you don’t have to pay the tax due first. That’s not true in the U.S. District Court or the Court of Federal Claims, where you must pay the tax owed before filing a lawsuit. Many taxpayers don’t have the resources to do that.
If these notices and deadlines seem overly complicated, the National Taxpayer Advocate, Erin Collins, agrees, addressing the issue not once but twice in her blog this summer.
But this issue isn’t new: the former advocate, Nina E. Olson, repeatedly emphasized the confusing nature of math error notices and the lack of transparency about next steps, including calling it one of the “most serious problems” in her final report to Congress. As a result, the IRS took some steps to improve things, including cleaning up those CP11 and 12 notices.
But this year, they took several steps backward. Specifically, in the most recent filing season, over 5 million math error notices were issued without including the 60-day language if the only adjustment was to the RRC.
The easiest solution for taxpayers with questions about the notice would have been to pick up the phone. But as taxpayers and tax practitioners like me can attest, that wasn’t likely to help. During the 2021 filing season, the IRS received 167 million telephone calls, more than four times the number of calls in 2019. But only 9% of callers reached a live person.
Fortunately, once the NTA sounded the alarm, the IRS took action. The agency has agreed to include the language in future notices and will send supplemental notices to those taxpayers who received inadequate correspondence. That supplemental notice gives taxpayers an additional 60 days to request a correction.
It’s a step in the right direction—this time. But it doesn’t resolve the underlying issue, which is that math error notices are often unclear and confusing. And that level of confusion may be about to get worse. There will be another round of RRC next year. And even if that goes smoothly following this latest snafu, there’s something else lurking for tax year 2021: the expanded child tax credit.
For the tax years 2018 and 2019, the last years for which comprehensive data is available, about one in six math errors were associated with the child tax credit. It was the most common identifiable credit or deduction related to math errors reported by IRS.
The full expanded child tax credit will be available to 27 million children whose families haven’t qualified for the full credit in prior years, according to the Center on Budget and Policy Priorities. That means more families claiming more credit—and more potential for errors.
You can already see the problem, right?
Hopefully, the IRS will get this sorted out before next year. But just in case, the NTA is asking for a change to Section 6213(b)(2)(A) to require that the 60-day language be included in all math error notices together with a clear notification of taxpayer rights. Let’s hope Congress is paying attention.
This is a weekly column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.
To contact the reporter on this story:
To contact the editors responsible for this story: