Did IRS Robots Cause The Tax Court Petition Flood?

Not too long ago I used to be puzzling about the way it could possibly be that the Tax Court docket had by mid-August acquired extra petitions than it had in complete in every of the previous three years. Had I not had the great fortune to retire from energetic follow in 2018, I may need recognized. There’s a good likelihood that the Automated Underporter Program, what I name the IRS robots, bears a big share of the accountability.

About AUR

AUR is why good tax preparers will tie themselves in knots to be sure that each quantity that comes from a third-party supply exhibits up on a 1040 the place it’s presupposed to be, even when the third-party type is mistaken. You determine a way or different to again it out of the overall. It’s why you do not need to take quite a few types and add them up right into a single quantity.

Based mostly on anecdotal proof accrued over 40 years, I’m of the opinion {that a} doc mismatch is the second most probably factor that the IRS will catch. Being mistaken about what the precise funds made had been is the most probably. Again within the day, I concluded that they had been normally proper, however occasions have modified.

At any fee if there’s a mismatch, you may be despatched a type letter normally CP2000. Here’s a good upbeat rationalization.

Your response to the discover is meant to immediate human intervention and inform the robots to take a break. Spoiler alert – that is the weak level.

In the event you do not reply or they find yourself agreeing to disagree with you, you’ll get IRS Letter CP3219A, which is known as a statutory discover of deficiency. Lew Taishoff refers to it as a SNOD, which sounds somewhat gross. Additionally it is referred to as a 90 day letter. The 90 days is the period of time it’s a must to file a petition with the US Tax Court docket. Here’s a good rationalization of Kind CP3219A.

Now you’ll be able to attempt to give them extra info to vary their thoughts, however that doesn’t cease the 90 day clock from ticking. So until you suppose they’re proper or the quantity is simply too small to fret about, you must a minimum of begin the petition. And the sensible factor is to not get wherever close to the deadline.

The Downside

It seems that the IRS issues with coping with its backlog of unopened mail could be the supply of the petition flood. Keep in mind the system is automated. If there isn’t a response to the CP2000, the CP3219A goes out with none human intervention. However what if the response is within the stack of unopened mail? They actually shouldn’t be cranking out the SNODs whereas they’ve unopened mail, however apparently that’s what’s going on.

The proof I’ve for this rationalization is anecdotal. I heard from Russ Fox EA. His weblog Taxable Talk goes again to 2005, which makes it fairly venerable. His agency Clayton Financial and Tax has a deal with skilled gamblers. Due to peculiarities of their enterprise, skilled gamblers are liable to doc mismatches. Russ warns them about it and takes care of it when it occurs.

In his 20 12 months profession up till 2021 Russ has had eight purchasers want Tax Court docket petitions. 4 of these had been from AUR. He wrote me about how it’s going this 12 months:

To this point in 2021, I’ve had one other eight purchasers file Tax Court docket petitions. A kind of was an interpretation dispute (Tax Court docket is your ticket to Appeals); the opposite seven had been as a result of the IRS by no means processed/learn well timed responses to AUR notices—these responses had been well timed faxed or well timed mailed (licensed mail) and had been merely ignored by the IRS. Now, that is (after all) a small pattern measurement—8 out of 26,000—however I strongly suspect what I’ve seen thus far in 2021 is a direct reason for the flood of petitions.

Then there it #TaxTwitter the place you may get perception from tax execs coping with the most recent issues.

I picked up two extra from an inquiry I posted there. I additionally heard from W Robert Brammer EA from Fredericksburg Virginia:

The a part of the issue that’s most obvious to me is the IRS computer systems proceed to subject CP sequence notices and extra when the reply to their points is someplace within the nice warehouse of unopened mail. Documentation. Amended returns. And on and on.

What’s Subsequent?

The Taxpayer Advocate Service – NTA Blog tells us that the IRS has issued 5 million math error notices with out together with details about the taxpayer’s attraction proper. The notices may be fairly complicated. however you’ll be able to at all times name IRS for assist. Solely extra like than not, they won’t reply.

Taxpayers who obtain these complicated math error notices will possible attain for his or her telephones to name the IRS, asking for a transparent rationalization as to what the discover means. Sadly, they might have a troublesome time reaching the IRS due to its poor degree of service. From January 1 via June 30, 2021, the extent of service (LOS) for Accounts Administration (AM) telephone traces was solely 16 %. Though it’s comprehensible that the LOS throughout this unprecedented time can be decrease than in previous years, even the LOS throughout “regular” occasions left tons of of hundreds of calls unanswered. Particularly, for a similar time interval final 12 months, AM’s LOS was virtually 56 %, which means greater than 40 % of all calls to this assist line went unanswered.

There will be follow-up notices informing taxpayer’s of their rights. The actually attention-grabbing tidbit on the weblog is that this.

The IRS is presently correcting extra errors on returns and issuing extra math error notices than in earlier years. Particularly, in calendar 12 months (CY) 2020 via July 15, 2020, there have been 628,997 math error corrections made on returns filed by taxpayers. For a similar time interval in 2021, the IRS made about 9 million math error corrections on returns filed by taxpayers, about 7.4 million of which had been associated to the RRC. 

RRC is the Restoration Rebate Credit score. These 7.4 million math error notices may make for one more file setting 12 months for Tax Court docket petitions in 2022.