Tax Preparation
The Ins And Outs Of Irs Math Error Notices: Reducing Your Tax Assessment While You Can
Whether you’re a fan of winter, spring, summer, or fall, most Americans agree on their least favorite season—and that’s tax season. Especially for small business owners, tax season can be a flurry of gathering documents, filling out endless forms, deciphering complex instructions, and possibly wishing you had enlisted the help of a tax planner much sooner. Once that tax return has finally been filed, most taxpayers move on without wondering… what happens next?
That is… until you receive your first “post-filing” correspondence from the IRS. In some situations, the IRS may need additional information to process a tax return or may audit your return and require you to submit detailed documentation. In other cases, the IRS may adjust your tax return without the “courtesy” of requesting documentation first—these are known as math error notices. Read on to learn more about these notices (which are surprisingly not always about math) and what to do if one appears in your mailbox this tax season.
What If The Irs Says You Owe More Tax?
Before we jump into math error notices specifically, it’s important to know that tax law protects a taxpayer’s right to protest a tax assessment before you have to pay. So all is not lost if you receive a post-filing correspondence from the IRS. If your tax return is audited, for instance, you have the right to challenge the IRS examination findings or submit additional information within 30 days. The IRS may determine that what you provided resolves the issue and adjust the tax assessment.
If you don’t respond to the 30-day letter or are unable to substantiate your challenge, the IRS will then send you a Notice of Deficiency (NOD). Once you receive a NOD, you have the right to petition the US Tax Court within 90 days and present your case before you have to pay any additional tax. The only other option if you miss this window is to pay the tax and sue for a refund.
There is one exception to the procedure described above—different rules apply for assessments arising out of mathematical or clerical errors.
What Is A Math Error Notice?
In the days before computer software, it’s easy to imagine how taxpayers filling out their returns by hand could forget to check their math, make errors copying numbers from one form to another, or neglect to fill in a line on their tax forms. But how do math and clerical errors occur with computer programs automatically running calculations and checking for discrepancies?
Today, math error notices are usually the result of incorrectly applying tax law provisions (or failing to provide enough information to support your application). In the past few years alone, the government has made numerous changes to tax law including introducing economic impact payments and recovery rebate credits, enhancing the child tax credit, and creating unemployment compensation exclusions. These changes have caused an explosion of math error notices. As of April 7, 2022, the IRS had issued 9.4 million math error notices with 8.3 million of those notices related to the recovery rebate or child tax credit.
The significance of a math error notice is that in these cases the IRS does not have to follow the usual notification process. Instead, the agency can propose changes and assess additional tax without allowing the taxpayer to challenge the assessment, submit additional documentation, or petition the US Tax Court. However, taxpayers still have the opportunity to dispute the assessment after they receive the notice—the process is just less clear.
What To Do If You Receive A Math Error Notice
Your first task is to determine whether the IRS adjustment is correct. One of the most vexing things about IRS math error notices is that they may not clearly state the error or the resulting tax adjustment. For example, a notice may state, “We found a miscalculation on your 2022 Form 1040, which affects the following area of your return: Income. We changed your return to correct this error. As a result, you owe [X dollars].” Since “income” covers a large portion of your tax return—especially for business owners with long and complex returns—taxpayers are left sifting through the pages searching for a possible error.
Start by accessing your IRS account transcript through your IRS online account. In some cases, you may be able to use this tool to track what the IRS changed and why they changed it. If you worked with a tax professional, send them a copy of the math error notice as soon as possible. This is where working with a Certified Tax Planner can pay dividends in reducing stress and time spent dealing with your tax assessment—their familiarity with tax law provisions makes errors like these much less likely.
If the IRS changes turn out to be correct, you will need to pay the tax in full or explore payment arrangements. With a math error notice, you also have 60 days to request a reversal or an abatement (a petition for relief from penalties). The notice itself will state your last day to respond in the upper right-hand corner of Page 1. The IRS is required to respond to a reversal or abatement request if they receive it in time.
Taxpayers can request an abatement via phone or written communication. Both methods come with their complications. IRS phone lines are especially clogged these days, but on the other hand, the IRS may take more than 60 days to process a written abatement request, which means taxpayers may receive collection notices before the IRS even reviews their request.
If you go for the written request, use certified mail to prove that you responded within the 60-day window. For extra assurance, you can also include a copy of Page 1 of the request, a self addressed stamped envelope, and a note asking the IRS employee who opens the envelope to stamp the copy “received” with the date and mail it back to you.
Instead of an abatement request, you could also attempt to file an amended tax return using the IRS-adjusted tax numbers as the original return information on Form 1040X, column A. Consult a Certified Tax Planner for advice on the best way to respond to a math error notice in your situation.
Examples: Contesting A Math Error Notice
Below are examples of situations that could result in a math error notice and how taxpayers can apply the approaches detailed above.
Example #1: Penelope received an IRS CP11 notice adjusting her 2019 tax return to the tune of almost $50,000! She did not request an abatement because she feared a more extensive examination of her tax return. The issue was a messy error by the IRS, disallowing her foreign earned income exclusion and duplicating already-reported foreign wage income. Penelope filed an amended 2019 return using the IRS’s recalculation as the “original” return information and attaching a chart showing where the IRS calculation went wrong. The IRS ultimately accepted her corrected calculation.
Example #2: Joaquin received an IRS CP11 notice adjusting his 2020 tax return for incorrect estimated tax payments claimed. However, he discovered that the IRS had also incorrectly calculated the taxable portion of his Social Security income (disregarding a lump-sum election). The IRS was partially right and partially wrong. Joaquin requested a reversal within the 60-day window listed on his notice, and the IRS reversed the changes based on the documentation he provided.
Example #3: Blessing received a math error notice that her 2018 tax return had been adjusted two-and-a-half years after e-filing in April 2020. Why? They disallowed her Qualified Business Income Deduction because she had not included Form 8995 or 8995-A. However, these forms did not yet exist when Blessing filed her 2018 return! She requested an abatement by mail within the 60-day window.
Summary
Knowing your rights as a taxpayer is essential when it comes to contesting a tax assessment. Understanding the difference between a math error notice and other IRS post-filing correspondence will help you to take the next steps quickly and increase your chances of reversing an adjustment to your tax return. For guidance in correctly applying tax law provisions and avoiding the dreaded IRS notice, contact us to work with a Certified Tax Planner today!
