Resolution of Math Error Disputes Often Late, Sometimes Wrong

      In taxpayer disputes over its correction of math errors on returns, the IRS was wrong 17% of the time and late in resolving disputes 40% of the time, the Treasury Inspector General for Tax Administration (TIGTA) found.
IRC § 6213(b)(1) allows the IRS to adjust items on tax returns without an audit for math or clerical mistakes including computational errors, tax credit claims that exceed allowable limits, and incomplete or incorrect supporting information including missing or incorrect Social Security numbers and missing documentation. The Service has been using this authority increasingly in recent years, with much of the higher level of errors stemming from the making work pay credit and its interaction with stimulus payments and credits

When it makes math error adjustments to a taxpayer’s tax return, the IRS sends a notice to the taxpayer. The taxpayer then has an opportunity to dispute the IRS’ adjustment. Under IRS guidelines the taxpayer should receive a final response from the IRS within 30 calendar days from the taxpayer’s initial telephone call or written correspondence.


During the period in 2010 that TIGTA studied, the IRS issued approximately 8.6 million math error notices. A total of 133,186 taxpayers disputed the adjustments made to their tax returns. In an audit, TIGTA studied a sample of 260 of the taxpayer responses contesting math error adjustments. It found that 104 of the 260 responses (40%) were not resolved in a timely manner by the IRS and that 43 of the responses (17%) were not resolved accurately.
TIGTA also found that the IRS had no processes in place to monitor the timeliness of math error notice responses. It noted in its report that almost every failure to timely respond in its sample occurred when taxpayers had written to the IRS. IRS management indicated to TIGTA that taxpayer telephone responses are given priority during the filing season because telephone responses are addressed when received.

TIGTA recommended that the IRS develop processes to ensure that math error disputes with taxpayers are resolved more quickly and accurately.

As always, we are here to help! Contact our office today and let us take the confusion out of tax law for you and your business.  Focus on making money and leave the rest to us.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

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IRS won’t tax personal use of your work cell phones!

The IRS has announced in its recent Notice 2011-72, that it will not tax employees’ personal use of their employer-provided cell phones. In other words, all usage is nontaxable as long as the employer provided the phone primarily for noncompensatory business reasons. Likewise, employer reimbursements to their employees for using personal cell phones for business are non-taxable.

 

Phone Usage as a Fringe Benefit

Generally fringe benefits are taxable unless specifically excluded from income by law. The IRS views that personal use of an employer-provided cell phone is essentially an excludable de minimis fringe benefit, meaning its value would be too small to make it administratively worth the effort of collection.

In order for personal use to qualify as a de minimis fringe benefit in this instance, the IRS requires that the employer provide the phone primarily for noncompensatory business purposes and must have substantial business-related reasons for providing the phone. The IRS gave several examples of these reasons, including instances where the employer needed the ability to contact the employee at all times for work-related emergencies. On the other hand, a cell phone provided for morale, good will, or as additional compensation is not be tax-free.

Employer-provided reimbursements

In a separate memo to its field examination operations, officials from the IRS operating divisions issued "audit guidance" to IRS examiners regarding employer reimbursements to employees for the business use of the employee's personal cell phone. Examiners were instructed to apply the approach of  Notice 2011-72 and not assert that the employer's reimbursement of expenses incurred after December 31, 2009 was taxable.

Effective date

Notice 2011-72 applies to all tax years after December 31, 2009. While the IRS did not discuss the treatment of cell phones before 2010, it is unlikely the agency is eager to challenge the tax-free treatment of cell phones in the ordinary case.

As always, we are here to help! Contact our office today and let us take the confusion out of tax law for you and your business.  Focus on making money and leave the rest to us.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com