how the irs abuses ‘math errors’

oic fees, partial payments are counterproductive.

by 卡塔尔世界杯常规比赛时间 research

improve the internal revenue service?

yes, it is still possible.

one general area that could use some big-time tweaking is that of tax assessment and collection procedures. the national tax advocate has found no fewer than 16 ways to make the irs more fair and more efficient.

which ones would you recommend?

1. continue to limit irs’s use of “math error authority”

under irc § 6213(g), when the irs detects a deficiency in a taxpayer’s return, it doesn’t just slap the taxpayer with a higher tax bill. it gives the taxpayer 90 days to file an appeal.

but there’s an exception. if the irs determines that the deficiency is just mathematical or clerical error, it can summarily assess the tax due and demand it after 60 days. if the taxpayer does not request an abatement of the assessment within that period, he or she loses all rights to appeal.

math error authority is a cheap and reasonable way to expedite collection – so much so that the irs has been found to stretch the meaning of “math error.” according to the nta, the authority has extended beyond the simplicity of arithmetic and into more complicated situations. computerized notices, for example, are often confusing, so taxpayers often fail to respond in 60 days. their questions and pleas consume a lot of irs time, and erroneous assessments and improper collections make things even more painful and complicated. sixty days may not be enough time to resolve the questions.

tas recommendation

amend irs § 6213(g) to allow the irs to summarily assess a math or clerical error deficiency only when:

1. there is a discrepancy between a return entry and reliable government data.
2. the irs’s notice clearly describes the discrepancy and how to contest it.
3. the irs has researched all information in its possession that could help reconcile the discrepancy.
4. the irs does not have to evaluate documentation to make a determination.
5. there is generally a low abatement rate for taxpayers who respond.

2. allow taxpayers overseas more time to request abatement of a math error assessment

taxpayers, be they in montana or mongolia, have just 60 days to request an abatement of an irs assessment of a math or clerical error. after that, they lose their taxpayer right to appeal.

this isn’t fair to far-flung taxpayers in ulaanbaatar or, for that matter, ouagadougou, paris or havana.

how many taxpayers live overseas? something like 9 million, plus 170,000 military service personnel, plus 330,000 students.

for obvious reasons, correspondence between washington, d.c., and foreign lands can take longer than domestic mail. adding to the complication, people overseas often do not have ready access to their financial records of years gone by. plus of course there’s no internet on the beach.

it just so happens that in matters of tax return deficiency more complicated than math error, taxpayers in the u.s. have 90 days to appeal, and people with addresses in other countries have 150 days.

why not have the same rule apply to math error deficiencies?

tas recommendation

amend irc § 6213(b)(2)(a) to allow 120 days to request abatement when a math error notice is addressed to a taxpayer outside the u.s.

3. waive user fees for taxpayers who enter into installment agreements

taxpayers who cannot pay the full amount of their tax liability in one lump sum can enter a monthly installment agreement (ia) with the irs.

the irs, ever hungry for a little more, can legally charge a “user fee” for ias.

• if the taxpayer handles the agreement on paper, the fee is $225.
• if they apply online, it’s $149.
• if the taxpayer agrees to direct debits from a bank account, the on-paper application fee drops to $107.
• if the direct debit is arranged online, it’s only $31.
• the low-income fee is only $43 for non-debit payments.
• the irs can waive the low-income fee for direct debits or if the taxpayer cannot arrange direct debits, typically because they don’t have a bank account.

the nta questions the effectiveness of these fees. for one thing, they more than cover the cost of accepting ias. for another, taxpayers resorting to ias are, by definition, suffering some kind of financial stress, and that stress is exacerbated by user fees.

so what do a lot of well intentioned taxpayers do when faced with a fee for trying to pay off their taxes? they just opt not to pay the taxes or maybe to just a cheat a little next time around.

the nta says that for several reasons the fees may not be worth charging.

• even if people don’t qualify as low-income, they are, at least temporarily, financially strapped.
• many low-income taxpayers end up paying the full fee.
• the fee, full or partial, will motivate some taxpayers to not pay what they owe.
• the cost of processing online payments and direct debits is so low that it’s really not worth processing and collecting them.
• the ill will generated by the fees could lead to future noncompliance that outweighs whatever had been collected in fees.

tas recommendations

• amend irc § 6159 to waive the user fee for all direct debit ias.
• amend irc § 7805 to prohibit the irs from increasing user fees unless first determining, by public comment, that the increase will not exacerbate hardships or reduce revenue by eroding voluntary tax compliance.

4. improve “offer in compromise” program accessibility by repealing the partial payment requirement

irc § 7122(a) authorizes the irs to accept an “offer in compromise” (oic) to settle a tax debt. the oic applies to debts the service figures it won’t be able to collect in whole. better some than nothing.

part of the deal is a taxpayer obligation to pay full taxes for the next five years. taxpayers who fail to follow through could be billed for the amount that was abated in the oic.

in principle, the oic is a good idea. the irs collects taxes it wouldn’t otherwise collect, and a noncompliant taxpayer is seduced into compliance.

but upfront payments and user fees sour that good idea. taxpayers who agree to a “lump-sum” (payable in five or fewer installments) payment have to pony up a nonrefundable partial payment of 20 percent along with the application. those who agree to a “periodic payment” (six or more installments) offer have to include the first proposed installment with their application.

on top of that, there’s a user fee, though taxpayers making less than 250 percent of the federal poverty level can request a waiver of the fee and the upfront partial payment.

those payments and fees, however, may be counterproductive.

• the treasury department found that the partial payments “may substantially reduce access to the oic program… reducing access to the oic program makes it more difficult and costly to obtain the collectable portion of existing tax liabilities.”
• in 2005, the treasury inspector general for tax administration found that when the irs first imposed a $150 oic fee in 2003, offer submissions declined by more than 20 percent. the department estimates that repealing the requirement would have a positive revenue impact.
• a 2007 study by the taxpayer advocate service found that taxpayers above the poverty threshold were no better able to afford a partial payment than those below it, and those below it often did not obtain the waiver.

so why the fees? why not just collect whatever taxes are possible and leave it at that?

tas recommendation

amend irc § 7122(a) to remove the requirement that taxpayers include a partial payment with oic applications.

posted on july 2, 2019