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IRS still sending false default notices.

Over 43,000 taxpayers (possibly as many as 60,000) have received erroneous default notices from the Internal Revenue Service regarding installment payments for the retroactive tax rate increase to high-income individuals due under the Omnibus Reconciliation Reform Act of 1993. Although the IRS told the American Institute of CPAs tax division that it had discovered the problem "right away," taxpayers continued to receive the notices. In fact, one IRS spokesman told the AICPA that taxpayers who had already received one could get up to three additional collection notices.

Thomas E. Reardon, CPA and principal of Larson, Allen, Weishair & Co. in Minneapolis, told the Journal that many of his clients received payment requests for the third installment payment due in 1996. "The OBRA installment agreement said if you are delinquent in payment, the next installment payment is due immediately," said Reardon. "Now I have clients receiving notices regarding federal tax liens."

The IRS has twice offered the AICPA guidance in handling the erroneous notices. It told the Institute that taxpayers who received one would get an apology letter clearly indicating that the IRS made the error. It also said taxpayers would receive another notice indicating when their 1994 return was processed. The IPS guidance said that

* Taxpayers who extended their returns and received premature second-installment balance-due notices dated July 3, 1995, will receive an apology letter from the IPS. These taxpayers' accounts will be corrected.

* Taxpayers who believe they have a problem that has not been corrected should either call (800) 829-1040 and tell the IRS they received an "OBRA erroneous notice" or write to the IRS address printed on the top left corner of the notice, including a copy of the notice and writing the key phrase "OBRA erroneous notice" on the notice or on a letter attached to it.

"The only way CPAs can handle this problem is through correspondence or through a telephone call," said Reardon. "Unfortunately, the IRS is not paying attention." Reardon said every time he called the IRS's toll-free number the line was busy. Gwen A. Krauss, assistant commissioner of taxpayer services at the IRS, told the AICPA tax division that the number of calls competing for access to the IRS toll-free number has "decreased significantly," and a phone call remained "the least painful method of correcting individual problems."

Whom do you bill?

"CPA's are frustrated because the IRS errors are costing them a lot of time and manpower," said Eileen R. Sherr, technical manager in the A[CPA tax division. "One CPA told the tax division he was keeping a record of the time he spent on the erroneous notices and was considering billing his clients if the problems recur next year, but most CPAs do not consider this billable time because the client did everything correctly," said Sherr.

"It takes a lot of time to write the necessary letters to the IRS because each one has to be customized," said Reardon. "But my practice has chosen not to bill our clients for this work."

CPAs with questions, concerns and comments on erroneous OBRA default notices should contact Eileen R. Sherr of the AICPA tax division at (202) 434-9256.
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Publication:Journal of Accountancy
Date:Oct 1, 1995
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