Nina E. Olson is the executive director of the Center for Taxpayer Rights. From March 2001 to July 2019, Olson served as the National Taxpayer Advocate, an independent organization within the IRS, dedicated to assisting taxpayers resolve their problems with the IRS and making administrative and legislative recommendations to mitigate those problems systemically. Before serving as the National Taxpayer Advocate, Olson founded and directed The Community Tax Law Project, the first independent low-income taxpayer clinic in the United States.
In this post, Olson argues that the IRS is violating the Taxpayer Bill of Rights in how it administers math or clerical errors.
On April 7, 2024, the IRS issued Tax Tip 2024-46, By law, taxpayers have the right to challenge the IRS’ position and be heard. This press release discusses the fourth right of the Taxpayer Bill of Rights right under section 7803(a)(3). That code section requires the IRS commissioner to ensure that IRS employees are trained in and “act in accord with” the rights in Title 26, including 10 enumerated rights.
This Tax Tip says taxpayers have the right to:
Raise objections.
Provide additional documentation in response to formal or proposed IRS actions.
Expect the IRS to consider their timely objections.
Have the IRS consider any supporting documentation promptly and fairly.
Receive a response if the IRS does not agree with their position.
The Tax Tip then specifically applies this right to the summary assessment procedure under section 6213(b), aka “math errors.” After noting that the IRS will notify the taxpayer about a math or clerical error on its return, the Tax Tip states that “if this happens, the taxpayer has 60 days to tell the IRS that they disagree.” The Tax Tip further states:
Here’s what will happen if the IRS does not agree with the taxpayer’s position:
The agency will issue a notice proposing a tax adjustment. This is a letter that comes in the mail.
This notice provides the taxpayer with a right to challenge the proposed adjustment.
The taxpayer makes this challenge by filing a petition in U.S. Tax Court. The taxpayer must generally file the petition within 90 days of the date of the notice, or 150 days if it is addressed outside the United States.
I commend the IRS for highlighting the various rights that taxpayers possess and for giving examples of how those rights are applied in practice, expressed in plain language. But the statements in this Tax Tip are belied by the experience of clinicians at low-income taxpayer clinics representing low-income taxpayers who have received math error notices regarding claims for the rebate recovery credit and the child tax credit for tax years during the COVID pandemic. LITC attorneys have many cases in which the IRS has failed to abate the assessment when a taxpayer or its representative timely requests an abatement, as required by section 6213(b)(2)(A). LITCs have submitted their concerns to the Taxpayer Advocate Service via the Systemic Advocacy Management System; these concerns seem to go into a black hole for the most part. Meanwhile, the Center for Taxpayer Rights and the Community Tax Law Project have been working with Rep. Gwen Moore, D-Wis., to resolve their concerns. None of the answers provided by the IRS are satisfactory, and individuals at both the Center and the Project believe the IRS’s procedures violate the statute.
Recall that during tax years 2020 and 2021, the IRS issued advance payments of the rebate recovery credit and that in tax year 2021 it issued advance payments of the child tax credit (called the advance child tax credit or AdvCTC). Those payments were generally made based on prior year returns — 2019 or 2018 returns for the tax year 2020 economic impact payments, and 2020 or 2019 returns for the tax year 2021 EIPs and AdvCTCs. Taxpayers were required to reconcile their receipt of advance payments with their actual eligibility for the credits on their tax return for the year in question.
By design, then, the advance payments were made to people who were not eligible for the underlying credits when they filed their returns for the year in which the advance payments were made. (It was a COVID emergency, and there was a great need to get funds out to the American public.) For example, for the EIPs, assume Taxpayer A filed for tax year 2019 claiming two children as dependents. The IRS pays out the EIPs for taxpayer and dependents to the bank account listed on that return. However, in 2020, the two children lived for the entire year with the other parent, Taxpayer B. When Taxpayer B files her tax year 2020 return, she claims the full recovery rebate credit for herself and her two children. Under normal math error procedures, the IRS would disallow Taxpayer B’s recovery rebate credits for the two children and issue a notice of deficiency to Taxpayer B. Taxpayer B could then petition the Tax Court for a determination of her eligibility for the recovery rebate credit.
With respect to the AdvCTC, consider a slightly different scenario. Early in 2021, Taxpayers A and B file a tax year 2020 return as married filing jointly with two children. A month later, Taxpayer A separates from her spouse, Taxpayer B, fleeing an abusive relationship and taking the children with her. The AdvCTC payments are paid out to the bank account listed on the tax year 2020 return, which is in the control of the abusive Taxpayer B. As per section 24, Taxpayer A claims the children for purposes of the child tax credit on her tax year 2021 return. She doesn’t report any amount for the AdvCTC because she did not receive any AdvCTC herself.
As with the earlier example, under normal math error procedures, the IRS would adjust the amount of child tax credit claimed on the return for the amount that it paid out in tax year 2021 based on the tax year 2020 return information. It would send the taxpayer a Letter 12C or similar correspondence, informing the taxpayer that the IRS has adjusted the return and either reduced the refund or increased the tax due. The notice informs the taxpayer that it has 60 days from the date of the notice to request an abatement of the adjustment, at which time the IRS will review any documentation provided. If it continues to believe the adjustment is correct, it will issue a notice of deficiency, giving the taxpayer the right to petition the Tax Court. (The Internal Revenue Manual outlines slightly different processing steps where a taxpayer does not provide information but requests abatement (“unsubstantiated” — see IRM 21.5.4.5.5) and where a taxpayer does provide documentation (“substantiated” — see IRM 21.5.4.5.4).) As we all know, the notice of deficiency is important because it’s generally the only time that the taxpayer can get before a court about a tax matter without paying the tax first. For most low-income taxpayers, the Tax Court is likely the only path to judicial review.
What the LITCs have discovered over the last couple of years is that the IRS has somehow created secret procedures for rebate recovery credit and AdvCTC payments, whereby it’s not abating the summary assessment of the rebate recovery and child tax credits when the taxpayer (or representative) timely requests, nor is it issuing notices of deficiency. So taxpayers lose their right to go to Tax Court.
IRS personnel have told Moore’s office that there are different procedures relating to math errors of EIP/RRC/AdvCTC/CTC, depending on which of the following scenarios is present:
Scenario 1: Taxpayer claims RRC/CTC on its return and the IRS sends math error notice (CP-11 or 12) because its records show that the EIP or AdvCTC was paid out to taxpayer. Taxpayer says it never received the payment. IRS views this as a refund-tracing issue.
Scenario 2: Taxpayer claims RRC/CTC on its return and the IRS sends math error adjusting the amount of the RRC/CTC. Taxpayer says it’s entitled to all or part of the math error adjustment. IRS says this is a dispute about the calculation of the RRC/CTC.
In the first scenario, the IRS says once the taxpayer calls and disagrees with the CP-12, it issues a Letter 288-C, Interim Reply: Adjustment Request Considered, and initiates an internal trace regarding payments made. The letter states:
Our records indicate that we sent you a payment on "insert date here" in the amount of "insert amount here." We have initiated a trace on that payment. You will receive a notice and/or a package from the Bureau of the Fiscal Service with the result of this trace within the next (insert the correct timeframe for the trace to be completed).
Please follow all the instructions in that package to complete the entire trace process. After the trace process has been completed, if you disagree with the result from BFS, please call the IRS, to initiate your appeals rights in this matter.
Note that under this procedure the IRS does not abate the math error, nor does it send it to exam. In justification of its actions, the IRS has informed Moore’s office that section 6213(b) does not require immediate abatement; that is, the IRS is entitled to take its time to review whether the payment has been made, including requiring BFS to investigate. These investigations can take months or years. The IRS has stated that if the taxpayer still disagrees with the disallowance after completion of the BFS refund trace, the taxpayer can come back in at that time (months or years later), make the request for abatement again, and the IRS will then abate and issue a notice of deficiency.
This is, of course, nonsense. The section 6213(b)(2)(A) statutory language is explicit and clear: “upon receipt of such request [for abatement], the Secretary shall abate the assessment” (emphasis added). It doesn’t say, 18 months after receiving the request. It says “upon receipt.” As in, immediately.
I’m willing to cede that with all the confusion about EIPs and AdvCTCs, the IRS will want to do some preliminary research about the status of the refund. But the IRS can do this after abatement, in the Error Resolution Function. The abatement must be immediate and automatic; as the statute requires, the request for abatement has been received, and the adjustment must be abated upon receipt of such request. If the IRS research shows the EIP/AdvCTC was issued, it can provide that information in Letter 288C and ask the taxpayer to request a refund trace or provide other information. If that information is not sufficient or not forthcoming, the IRS can issue a notice of deficiency. But the IRS’s current procedures, with all the back and forth occurring before abatement, serve only to place administrative burdens on the taxpayer, with the hope that the taxpayer will just go away and not make problems for the IRS. It undermines fundamental taxpayer protections — protections that were central to Congress granting the IRS the right to make summary assessments in the first place.
For a discussion of the legislative history of mathematical and clerical error authority and congressional concern for taxpayer protections in expanding that authority, see my discussion in the legislative recommendation regarding math errors from the 2002 Annual Report to Congress (pages 185-197). I also made math error the fourth most serious problem of taxpayers in the National Taxpayer Advocate 2002 Annual Report to Congress (pages 25 to 31); the discussion is eerily familiar.
But we are not done here. There’s a second scenario, where the EIP or AdvCTC is paid out to the wrong person and the correct claimant files a return and requests the full amount. The IRS automatically checks and sees that the EIP/AdvCTC was sent to someone else and uses math error to adjust the taxpayer’s return for additional tax due or a reduced refund. In those cases, the taxpayer timely requests abatement on the basis that it’s entitled to all or part of the math error adjustment. This is not about a missing payment; instead, the taxpayers are claiming they are substantively entitled to the credits. The IRS says this is a dispute about the calculation of the RRC/CTC and that it follows the usual procedure of abating the tax and sending the case to exam.
In fact, that is not happening. LITCs have examples where the IRS treats scenario 2 cases as if they were scenario 1 (refund trace) cases, leaving the taxpayer in an endless loop of refund traces and not sending the case on to exam to determine the correct amount of credit. In other cases it appears the IRS makes up a process out of whole cloth. For example, advising the taxpayer that this is a civil matter between the taxpayer and someone else that must be resolved in state court. Accordingly, the IRS does not abate and does not issue a notice of deficiency. I honestly don’t know where the IRS came up with that language. To me it’s a clear violation of section 6213(b).
Here are two redacted examples of actual cases handled by LITCs.
Example 1: Taxpayer received a CP-12 math error, it was timely disputed, and an abatement was requested via certified mail. Instead of a notice of deficiency, taxpayer received an 89C letter, instructing the taxpayer to file a Form 1040x. The letter acknowledged the protest and said based on the information provided by the taxpayer that it should file an amended return. When the LITC attorney called the IRS, the IRS simply told the attorney that it had “closed out” the math error “disagreement” and issued the 89C letter. No abatement and no notice of deficiency.
Example 2: Taxpayer separated from spouse in 2018 and lived with son in public housing separate and apart from spouse to present day. Taxpayer receives Letter 6470 in 2021 denying her claim for RRC and other credits. The letter states in bold, “To preserve your formal appeal rights, including the right to appeal our decision in the U.S. Tax Court before you pay any additional tax you may owe, you must contact us by phone or in writing within 60 days from the date at the top of this letter.” The letter further states in regular font, “We’ll then reverse the change we made,” and “You don’t need to provide an explanation or additional documents when you request the reversal.”
In October 2021, the taxpayer’s representative timely filed a formal protest to the adjustment listed on Letter 6470. More than 8 months later, in June 2022 IRS sent client Letter 96C. This letter stated the following:
We are unable to make the requested change(s) as the Economic Impact Payments requested have been previously issued as you were informed via previous correspondence [Letter 6470]. To resolve your issue, this would need to be handled through the civil court system, and unfortunately the Internal Revenue Service does not aid with civil matters. [Emphasis added.]
In 2022 the LITC attorney filed a Form 911, Request for a Taxpayer Assistance Order, with all supporting documents attached, but was told that these cases are not being worked. In this case, the representative is still (in 2024) trying to resolve this matter.
What is particularly disturbing about this case is not only the IRS’s failure to abate and issue a notice of deficiency, but the reference to the civil court system. During the pandemic, the Center for Taxpayer Rights and Community Tax Law Project, along with Moore’s and Sen. Cortez-Masto’s staff, met with IRS officials and were told that although the IRS had to pay out advance EIPs based on prior year returns, taxpayers who were survivors of domestic violence could claim the RRC on the current year return and the IRS would figure out what payments were made in error through the math error process, including abatement, examination, and issuance of a notice of deficiency, where appropriate. Now we know that this was an empty promise.
What to do with this mess? In terms of administrative relief, the IRS could try to identify the universe of taxpayers who received Letters 288-C or 6470 and who were still communicating with the IRS. It could also identify the universe of taxpayers who received Letter 96C, citing “civil court” as the route for resolution, or any of the other bizarre letters that were sent out relating to RRC/CTC math errors. It could then systemically abate the math error assessment for these taxpayers and issue a letter to these taxpayers, apologizing for the way it handled this case and asking the taxpayer to provide any information that might prove their eligibility for the original claim. (In the IRS’s own words, it can abate math errors long after the original protest, and the abatement will relate back to the date of the timely original protest.) The Taxpayer Advocate Service could also accept these cases and issue Taxpayer Assistance Orders in which the IRS refuses to abate and send the case to the exam function, leading to a notice of deficiency.
Given the IRS’s position that it doesn’t have to abate a math error assessment immediately upon receipt of the taxpayer’s timely request, Congress may need to get involved, whether it is through congressional inquiries or legislation. Sens. Elizabeth Warren and Bill Cassidy have proposed a bill to improve math error notices, which includes a requirement that the IRS issue a notice of abatement with details of what, precisely, has been abated following the taxpayer’s timely request. That requirement would reinforce the statutory language that abatement “upon receipt of such request” means abatement upon receipt of such request. (This is just one more example of why Congress sometimes micro-manages the IRS — because it refuses to do something Congress told it to do in clear statutory language.)
None of this is a perfect solution, but it does bring the IRS into compliance with section 6213(b) and the right to challenge the IRS’s position and be heard. There is also the possibility that some taxpayers who have been denied abatements and notices of deficiency, through their LITCs, could bring refund claims in federal district court or the Court of Federal Claims. But that approach requires stamina on the taxpayer’s part as well as representation. It would be so much better if the IRS just did the right thing and provided taxpayers with the rights that they are statutorily entitled to, albeit late.