In a Project Manager Technical Advice addressed to the IRS Taxpayer Advocate and the Commissioner of the Wage and Investment Division, the Chief Counsel’s office concluded that the IRS can use the math authority to correct errors in the earned income tax credit, child tax credit, additional child tax credit and the American opportunity tax credit even if the return has already been processed and a refund issued (PMTA 2018-017).
The question arose in response to a report issued by the Treasury Inspector General’s Office for Tax Administration (TIGTA) that looked at the IRS’s response to documentation rules for such credits that were enacted as part of the Protecting Americans from Tax Hikes Act of 2015 regarding 2014 returns filed during the 2016 filing season, after the effective date of the new rules. The memorandum summarizes the TIGTA report as follows:
Before the enactment of the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113 (PATH Act), taxpayers could claim the EITC, the CTC/ACTC, and the AOTC for the year in question on an amended or late-filed return with a TIN that was issued after the return’s original due date. Effective December 18, 2015, however, PATH Act sections 204, 205, and 206 amended sections 32(m), 24(e), and 25A(i)(6) to provide that a taxpayer can use a TIN to claim one of these credits only if it was issued on or before the original due date of the return involved. These provisions were part of a package of provisions intended to reduce fraud, abuse, and improper payments in refundable credit programs (TIGTA Report, p. 2). PATH Act sections 204, 205, and 206 apply to any returns filed after the date of the enactment.
TIGTA reviewed tax year 2014 returns filed and processed during the 2016 filing season and identified more than $34.8 million in EITC, CTC/ACTC, and AOTC credits that were paid to 15,744 taxpayers filing tax returns for years before their TINs were issued. Accordingly, the TIGTA Report notes that each of the refundable credit claims associated with the 15,744 returns should have been disallowed by the IRS based on the relevant PATH Act provisions.
The Taxpayers Advocate’s office had a concern with one of the IRS’s proposed responses to deal with these returns:
In response to the TIGTA Report’s recommendation to take steps to recover the erroneous refunds, the Service is considering the use of math error authority to disallow these credits. The specific provisions that authorize these math error assessments are subsections (F), (I) and (J) of section 6213(g)(2), which apply when there is an omission of a correct TIN required to be included on a return involving EITC, CTC/ACTC, and AOTC credits. When a taxpayer includes a TIN on the return claiming the credit, the taxpayer is representing that the TIN was timely issued. If, however, the TIN included on the late or amended return was untimely issued — contrary to the requirements of the PATH Act amendments — then there is an omission of a correct TIN on the return. The IRS determines that a TIN was untimely issued by obtaining data from the SSA or the Service’s own records that shows the TIN was issued after the return’s due date. In these cases, there is a difference between the information provided by the taxpayer on the return and the information obtained by the Secretary from the person issuing the TIN.
Absent a taxpayer’s timely objection, the math error procedure allows the IRS to move directly to assessing the tax due, bypassing any option for the taxpayer to dispute the matter in Tax Court or via other pre-assessment options that are generally available. As the memorandum explains:
Section 6213(b)(1) allows the Service to make assessments without following the section 6213(a) notice of deficiency procedures if there is a mathematical or clerical error, as defined in section 6213(g)(2), appearing on the return. In lieu of a notice of deficiency giving the taxpayer 90 days to file a petition in the Tax Court, section 6213(b)(1) requires that the Service provide a notice to the taxpayer that an assessment has been or will be made based on the mathematical or clerical error. The taxpayer then has 60 days to request an abatement of the assessment. If the taxpayer requests abatement, the Service must abate the assessment. Before the Service can reassess the tax, it must follow the section 6213(a) notice of deficiency procedures.
The full list of items that are eligible to be treated under the math error rules are found at IRC §6213(g)(2). While the Tax Reform Act of 1976 created a list of five items that qualify, Congress has now greatly expanded that list, now containing 17 separate items.
The Taxpayers Advocate’s office objected to the IRS’s use of this tool after the return had been processed. But the memorandum concludes that there is no time limit on the IRS’s ability to use the math error adjustment so long as the statute remains open to issue an assessment.
The analysis begins by stating:
While Congress has repeatedly added to the list of items that constitute a math error since the enactment of the provision in 1926, Congress has never specified any timing limitations on when the Service may exercise its math error authority. There is nothing in the legislative history of section 6213 to suggest that math error authority may only be used during the initial processing of a return.
Based on the law’s language, the IRS concludes the following:
The Service can assess a tax at any time prior to the expiration of the period of limitations for assessment. As a general rule, that limitations period is three years after the filing of the return under section 6501. Nothing in section 6213(b) indicates that a different rule should apply in the math error context, and in the absence of such language, the general rule that the Service has three years after the filing of a return to make an assessment controls. Accordingly, we conclude that the Service can exercise math error authority under section 6213(b) at any time within the statutory period of limitations for assessment, including in the circumstances presented here, after the initial processing of returns.
The memorandum argues that this is consistent with Congressional intent, noting:
In our view, this conclusion is consistent with Congressional intent. It is certainly true that section 6213(b) initially authorized the Service to correct garden-variety mathematical and clerical errors that appeared on the face of returns. Today, however, section 6213(g)(2) now authorizes the correction of errors and the making of assessments relating to matters that are neither strictly mathematical or clerical errors, nor errors that can necessarily be identified just by looking at the return. In particular, the omission of a correct identification number on a return, as required by sections 32(m), 24(e) and 25A(g)(1), is not a mathematical or clerical error as originally contemplated by the statute, and whether a reported identification number is the correct number and was timely issued may not be obvious from the return itself. Nevertheless, the Service is able to catch these errors, using internal and third-party information, and Congress has chosen to add these additional provisions to the definition of “mathematical or clerical error.”
The memorandum also argues that while traditionally math errors are corrected before a return is accepted and a refund issued, the issues presented by the PATH Act being passed just before a tax processing season began and being immediately effective, prevented the IRS from being able to catch these errors during initial processing:
It is true that the Service will, in most instances, use its traditional and expanded math error authority during the initial processing of returns when the Service will generally discover these errors, in this case, however, due to the unique circumstances created by the effective date of the PATH Act revisions and the onset of the filing season, the Service did not have the procedures in place to catch the errors when processing these returns. These unfortunate circumstances at the initial processing stage do not deprive the Service of the authority to rely on section 6213(b) math error authority.
As well, the memorandum rejected the objection that the IRS was retroactively applying these correction provisions to taxpayers:
We considered possible due process and fairness concerns arising out of the arguably retroactive application of the math error corrections to these particular taxpayers. As discussed, however, notices of the math error assessment would be issued and taxpayers would have the opportunity to request abatement of the assessment and to seek pre-payment judicial review in Tax Court. Accordingly, we see no due process concerns with the use of math error authority under these circumstances. See, e.g., Phillips v. Commissioner, 283 U.S. 589, 595-600 (1931) (prepayment right to petition Board of Tax Appeals satisfies the requirements of due process); Schiff v. United States, 919 F.2d 830, 832 (2d Cir. 1990) (argument that assessment of tax violates due process is frivolous argument where taxpayer has opportunity for Tax Court review).
The memorandum concludes, though, that while the IRS can use the math error procedures in these cases, such of the procedures is not mandated by the law. That is, the memorandum does not mean that the IRS has to move in the direction being considered, just that the agency can.
The big item to remember about math error assessments is that taxpayer do have a short period of time to shift the process back to the standard deficiency procedures by requesting abatement within 60 days pursuant to IRC Section §6213(b)(2)(A). That abatement must be granted by the IRS, after which any later attempt to assess the tax will be subject to the standard deficiency procedures (including the right to tax the matter to Tax Court without paying the balance the IRS claims is due).