A newly proposed change to the tax code would require greater specificity from the IRS when it comes to logging and correcting simple accounting errors on Americans’ tax returns, a plan that could affect the way that millions of Americans claim the popular child tax credit (CTC).
Currently, the IRS has the authority to fix math errors on behalf of taxpayers, as long as it gives them a general notice of the adjustment and 60 days in which to respond.
But the new bipartisan bill, which is being introduced by Sens. Elizabeth Warren (D-Mass.) and Bill Cassidy (R-La.) in the Senate and by Reps. Randy Feenstra (R-Iowa) and Brad Schneider (D-Ill.) in the House, would force the IRS to spell out exactly what the error on the tax return is and to provide a computation of what the agency believes is the proper amount of tax owed.
The legislation, which lawmakers are calling the IRS Math and Taxpayer Help Act of 2024, would “forbid the practice of reporting multiple alternative errors instead of adequately describing the error underlying the adjustment,” according to a one-page write-up.
During the 2022 filing season, the IRS issued at least 9.4 million math error notices, according to the National Taxpayer Advocate (NTA), the office in the IRS that pushes for reforms on behalf of regular taxpayers rather than businesses.
The vast majority of those at 8.3 million pertained to the pandemic-related recovery rebate credit as well as the child tax credit. Twenty-four percent of all math error notices in tax-year 2022 were related to the CTC, according to IRS data.
There were 2.7 million math errors logged by the IRS in fiscal 2023 and 2.2 million notices sent out about them, according to the most recent IRS databook.
“Math error adjustments, whether resulting in assessments of underpayments or reductions of claimed credits, bring with them … significant consequences if taxpayers do not act quickly,” the NTA noted in 2022.
The law would also create a pilot program to study the efficacy of sending out math error notices by registered mail, which requires a taxpayer signature upon receipt.
The pilot would draw conclusions “about the effectiveness of certified mail, with and without return receipt, and any other recommendations for improving taxpayer response rates,” the law says.
The new law is responsive to recent recommendations about math error notices made by the NTA.
Current NTA Erin Collins recommended in 2022 that “the IRS revise its math error notices to provide taxpayers with precise reasons for the adjustment, rather than listing out numerous possibilities.”
“It is key for taxpayers to understand that once the 60-day time period has elapsed and the taxpayer has not requested a reversal, they lose their opportunity to have the matter reviewed by the U.S. Tax Court,” she wrote.
Currently, math error notices can include several different error codes from the IRS integrated data retrieval system.
While the new law will require more detail from the IRS in its communication with taxpayers, the agency is currently in the middle of a massive operational overhaul, technology update and hiring spree enabled by the 2022 Inflation Reduction Act (IRA).
New protocols related to math errors are being developed as part of the overhaul, as noted in the agency’s strategic operating plan.
The IRS lists “[identifying] issues at the point of filing such as math errors, missing forms, or missing income reported by third parties” as one of its “key projects.”
Twenty-one percent of the IRA’s funds for IRS systems modernization along with 7 percent of operational support funds have been spent by the agency so far, as noted in a recent report from the Treasury Inspector General for Tax Administration.