August 24,2011

The Treasury Inspector General for Tax Administration (TIGTA) released a report in which it recommended that the IRS develop processes to ensure that math error disputes with taxpayers are resolved more quickly and accurately. Between Jan. 1 and July 23, 2010, TIGTA reviewed 260 taxpayer responses to IRS math error notices in which the taxpayers disputed IRS adjustments to their returns. TIGTA found that 104 of the 260 responses (40%) were not resolved in a timely manner by the IRS and that 43 of the responses (17%) were not resolved accurately.

The IRS has the authority to correct math errors on taxpayers’ tax returns without performing an audit. When it makes math error adjustments to a taxpayer’s tax return, the IRS then sends a notice to the taxpayer. The taxpayer then has an opportunity to dispute the IRS’ adjustment.

During the period TIGTA studied, the IRS issued approximately 8.6 million math error notices. A total of 133,186 taxpayers disputed the adjustments made to their tax returns.

According to TIGTA, when a taxpayer disputes a math error adjustment, under IRS guidelines the taxpayer should receive a final response from the IRS within 30 calendar days from the taxpayer’s initial telephone call or from the earliest date the IRS received written correspondence from the taxpayer. Based on the 40% rate of failure to timely respond in the sample, TIGTA estimated that 12,232 taxpayer responses may not have been timely resolved during the period studied.

TIGTA found that the IRS had no processes in place to monitor the timeliness of math error notice responses. TIGTA discovered that, although the IRS function responsible for working math error responses (the accounts management function) has a process to evaluate the timeliness of its overall inventory, it could not specifically determine if responses to math error notices were being timely resolved.

Based on the 17% failure to accurately resolve math errors in the sample, TIGTA estimated that 17,627 taxpayers may not have had their responses resolved accurately during the period studied.

In the report, TIGTA recommended that the IRS Wage and Investment Division develop a process to monitor timeliness of working responses to math error adjustments. However, the IRS did not agree with this recommendation. The IRS said it has already taken steps by sending interim letters to taxpayers in cases where it will not resolve math error disputes within 30 calendar days; however, TIGTA pointed out, “sending an interim letter does not resolve the case within the 30-calendar-day goal established by the IRS.”

TIGTA also recommended that the IRS prioritize the working of written responses relating to earned income tax credit math error adjustments and reinforce to staff the need to thoroughly and accurately work responses to math error adjustments.

TIGTA noted in its report that almost every failure to timely respond in its sample occurred when taxpayers had written to the IRS. IRS management indicated to TIGTA that taxpayer telephone responses are given priority during the filing season because telephone responses are addressed when received.