View from the Inside: The Right to Pay No More than the Correct Amount of Tax

May 1, 2015

This is the fourth in a series of articles from my view during my IRS career.  Today we will be reviewing the newer version of the Taxpayer Bill of Rights.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. The IRS website states, “Explore your rights and our obligations to protect them.” So let’s take a tour and grade IRS in the old fashion grade of my ancient school days, “A-F”. This may take two to three columns to clear the air as many of these rights are currently being violated.

The Right to Pay No More than the Correct Amount of Tax

Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

Automation has taken over the IRS.  As budgets get smaller IRS has traded the personal touch for more automated ways and, in the past few years, electronic ways of getting work done.  Though it takes less staff, relying on a computer (which I cannot forget is programmed by a human) to get it right is in some ways not the best solution.

IRS uses “filters” for all sorts of things.  The Discriminate Function Filter grades the tax returns for potential audit.  Filters sort through returns searching for characteristics of identity theft.  The IRS can “filter” for returns that do not match information documents that have been sent to the IRS.  “Filters” are popular and are used in various ways in the place of people to determine the IRS work load. There are other systems as well, but when we are looking at the Right to Pay No More than the Correct Amount of Tax, filters play a key role.

One question that has always bothered me was the fact that IRS tracks various types of statistics.  The one I was most concerned about was the one they never tracked, I am not even sure they think they need to track it, but I always wondered how many notices or letters that are issued are really correct.  In my career I guess I only dealt with the notices or letters that were wrong and advised on how to respond or who to call. Believe me, there are a lot that are wrong.

Remember we have a computer that is looking for a figure that is supposed to be reported on Line 5, but for some reason the taxpayer reported it on Line 8. The computer cannot rationalize that the amount is there but on the wrong line, so it issues a CP2000 notice, a typical matching notice based on all the information documents that have been reported to the IRS like Forms W-2 and 1099 and K-1’s.

These notices are hard for the typical taxpayer to understand and even the tax professional can be stumped on occasion.  As for myself, I have seen many where the information makes no sense at all and a letter is needed just to get clarification (that takes months and by then the Statutory Notice of Deficiency is issued and Tax Court is the next stop).  CP2000’s are one of the most prolific notices out there with 3- 4 million notices issued annually. The program called the Automated Under-Reporter Program generates $5+ billion annually. At the 2008 IRS National Tax Forum IRS stated that “cases are selected from the available inventory (CP2000) and reviewed by IRS technicians and generally, IRS issues CP 2000 notice to taxpayers for discrepancies that remain unresolved.”  NOBODY can review 3-4 million notices, so a sample of returns is taken for review.

Back to my question which is two-fold.  The right to pay no more than the correct amount of tax is in the Taxpayer’s Bill of Rights.  How many people get this type of notice and assume it is correct and agree and pay the tax, either because they are intimidated by IRS and the notice scares them, or it is cheaper to pay the tax than to fight it if they know it is wrong?   I have NEVER seen a CP2000 that proposes a refund, maybe they are out there, and I just was not privileged enough in 27 years to see one. 

A recent Issue Management Resolution System issue was raised concerning additional time needed to give the taxpayer more time to respond.

IMRS Issue 12-0001683 – CP 2000 AUR extensions
A practitioner would like the Automated Under-Reporter Unit to extend taxpayer response time from thirty days to sixty days.

Response: Approximately 65 percent of taxpayers respond to CP 2000 notices within 30 days. The Service allows for a period of time to elapse to ensure it has received all responses before initiating a "no response" action, which is generally the issuance of a Statutory Notice of Deficiency. At any time prior to the issuance of Statutory Notices of Deficiency, taxpayers can request and be granted an extension of time to reply. When the Service cannot work a case within 45 days of receiving a taxpayer response, a courtesy letter is sent acknowledging receipt of the response. It generally takes an average of three months to thoroughly review a response and initiate the next case action.

An average of three months, maybe a couple of years ago, but not now, not today’s IRS.  That would be an exception to the rule.  Here is what happens.

I receive the CP2000 notice, I am sure it is in error so I respond on a timely basis.  The IRS is supposed to place a hold on my account until someone can work the correspondence.  That does not always happen. No hold is placed on my account.  Some weeks later the tax is assessed and a Statutory Notice of Deficiency is issued. tTe 90 day letter tells me I can petition tax court. There a few other things that happen in-between, but the bottom line is the 90-day letter.  I do not want to go to Tax Court, I cannot afford to go to Tax Court, so I pay the tax.  Meanwhile my correspondence is setting there waiting to be worked. Do they even look at what I wrote?  Do they check the status of my account and see the tax is paid and close the case? I have had practitioner’s send correspondence down 3-4-5 times on the same issue and still ended up with a 90-day letter. Did they understand the tax issue enough to resolve the notice?  Was my correspondence overaged so the case was just closed? 

The Right to Pay No More than the Correct Amount of Tax should be rewritten to The Right to Pay IRS when I Get a Notice, because that is the easy way out if the amount is small. Taxpayers need to fight for this right in many cases and it can take months of their lives to get things corrected.

65% respond on time.  What percent get resolved in 45 days? Note it states, “It generally takes an average of three months to thoroughly review a response and initiate the next case action. It does not say to RESOLVE the case. How much of the $5+ billion amounts to incorrect tax? Grade F

keywords: taxpayer bill of rights, cp2000 notice, form w-2, form 1099, form k-1, imrs issue 12-0001683

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