In a grueling tax season beset by changing regulations and technical glitches, millions of taxpayers are still facing unresolved delays as they wait patiently for their refund checks, some of whom have been waiting for their refunds since February of this year. The Internal Revenue Service (IRS) is currently working to unbury itself from a massive backlog of unprocessed returns, and is opting to review many of them manually, which is proving to delay the process even further. One common reason for manually reviewing returns — simple math errors. While accounting firms—including E. Cohen—use sophisticated software to ensure data accuracy when completing tax returns, this doesn’t stop the IRS from performing these slow manual reviews, which in turn is causing significant processing delays. To understand why the IRS is choosing this approach, you must first understand how a filed tax return is processed by the IRS.
Once a tax return is filed with the IRS, it goes through a series of internal reviews. One of these detours is a review by the IRS’s Error Resolution System (ERS) where the return is reviewed for possible errors or omissions. To verify the accuracy of the Recovery Rebate Credit (RRC), Earned Income Tax Credit (EITC), Child Tax Credit (CTC) or Additional Child Tax Credit (ACTC), the ERS Unit is manually reviewing all returns where the taxpayer has claimed the RRC or used their 2019 earnings for the purpose of calculating the EITC, CTC, and ACTC. If the return successfully passes these reviews, it is processed, and a refund (if applicable) is disbursed. If a return contains mathematical and/or clerical errors, the IRS may summarily assess additional tax using its math error authority. The IRS is currently correcting more errors on returns and issuing more math error notices than it has in previous years. In fact, math error corrections on returns filed by taxpayers are up by more than 1300% over last year!
What is math error authority?
Congress has given the IRS the authority to bypass normal audit and deficiency procedures in favor of an abbreviated process known as math error authority. This authority was initially designed to allow the IRS to assess a tax liability by quickly resolving simple mathematical or clerical mistakes on the return and assessing the adjusted tax. Initially, Congress reserved this authority for the simplest mathematical errors but later expanded the authority to include situations where the taxpayer made a clerical error and this authority was expanded once again to include omissions of certain information like required taxpayer identification numbers (TINs), or Social Security numbers (SSNs) that don’t match the ones in their databases. When the IRS exercises its right to make math error adjustments, it will send the taxpayer a notice informing the taxpayer of the adjustment, correction, balance due or corrected refund amount, and language informing the taxpayer of the right to request an abatement within 60 days of the notice being sent. If the taxpayer requests abatement, the IRS must comply and abate the assessment. After the abatement is granted, the taxpayer must demonstrate why the adjustment is incorrect. During the abatement period, the IRS cannot collect the assessed amount. If the taxpayer provides supporting documentation and the IRS agrees, the abatement will be input and a notice will be sent informing the taxpayer that the matter has been closed. If the taxpayer fails to request an abatement or the taxpayer accepts the math error adjustment imposed by the IRS, then the math error adjustment is considered final and the taxpayer must settle any liabilities, meaning that the matter cannot be further reviewed in the U.S. Tax Court.
Although this authority can be a useful tool for the IRS when used appropriately, it comes with risks for taxpayers, namely, missing the opportunity to dispute the assessment in the U.S. Tax Court if taxpayers do not object to the assessment in a timely fashion.
Is my refund delayed because of a math error?
This is doubtful. As noted earlier, accounting firms use sophisticated software to ensure data accuracy, so the likelihood your return will face a math error adjustment is very small. However, your return is still subject to significant processing delays because of increased scrutiny and slow manually review processes.
To better understand why your refund might be delayed or if you received a notice from the IRS, please call your E. Cohen tax advisor at 301-691-3600 or email us at email@example.com.