IRS statistics are pretty reliable. So when it comes to tax problems, it is easy to identify the most common IRS problems taxpayers face.
Top 6 Tax Problems
Faced by Taxpayers
Jim Buttonow, CPA CITP
Updated on: July 9, 2021
Each year, the IRS publishes its Data Book which gives insight into taxpayer issues. You can read other IRS reports from various sources like the General Accountability Office, the Treasury Inspector General for Tax Administration (TIGTA), and the IRS advisory committees to glean more data into tax problems. Here are the six most common problems faced by taxpayers:
IRS statistics are pretty reliable. So when it comes to tax problems, it is easy to identify the most common IRS problems taxpayers face.
Tax Problems
- Penalties: “The IRS penalized me for late payment, late filing, or an inaccurate tax return” affects 29.5 million taxpayers annually
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- Over 150 different types of IRS penalties
- Only 11% of all penalties are abated
- 80% are related to individual taxpayers
- Most common penalty is “failure to pay”
- Failure to pay, estimated tax, and failure to file penalties make up 96% of all penalties for individuals
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- Unpaid taxes: “I owe but I cannot pay”- As of 2019, 20.1 million owe and cannot pay
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- Over $539 billion is currently owed to the US Treasury
- 84% are individual taxpayers (16.8 million owe the IRS)
- Over 90% obtain a streamlined installment agreement
- IRS is actively chasing 11.2 million delinquent accounts
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- Non-filers: “I have not filed my required tax return”
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- 10.6 million (individual only)
- 50.5 million business non-filers
- Identified non-filers through W-2s/1099s
- Likely several million more if you include small businesses
- IRS can file a return for taxpayer called a “substitute for return” using information in its possession (W-2s/1099s)
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- Underreport income: “I did not report all of my W-2s/1099s” is experienced by 2.0 million (2019)
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- Known as the IRS Automated Underreporter Program (CP2000 notice)
- Out of 150 million individual filers, 27 million taxpayers do not report all W-2s/1099s
- Average amount owed : $3,336
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- Math error notices: “I made an error and the IRS adjusted my refund/balance owed” affects 1.9 million (2019)
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- Individuals only
- Most common error is incorrect tax calculation
- IRS adjusts return automatically by notice
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- Audits: “I am being audited by the IRS” is experienced by 1.1 million (2019)
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- 74% are done by mail
- 89% of returns audited are changed by the IRS
- Mail audit- average amount owed : $6,164
- Field audit: average amount owed : $68,122
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Tax problem categories can overlap as Many taxpayers have multiple issues. For example, if a taxpayer has an audit, a late filing, or the inability to pay, they can also have penalties. The reality is that the most common issue facing taxpayers is trying to understand their IRS notices. About 10% of all taxpayers get an IRS notice. Those taxpayers have to navigate and figure out if they have one or more of the issues listed above, or a different issue not listed here like identity theft.
This article has been reprinted from Jackson Hewitt Tax Services. Top 6 Tax Problems Faced by Taxpayers – Jackson Hewitt